Structural dividend changes in the Australian stock market
The dividend landscape is evolving, and income investors must adapt.
Dividend income has always been a central feature of the Australian equity market. Yet in recent years, the dynamics of how companies return capital to shareholders have shifted significantly.
Today, the ASX trades on a cash dividend yield of just 3.3%, which is close to historical record lows. With income scarce, market participants are reacting strongly to dividend announcements. Companies paying more than expected are rewarded, while those paying less are heavily sold off.
This behavior is amplified by a structural change in the investment landscape: more than $42 billion of Australian bank listed hybrids are set to roll off in the coming years. Investors are increasingly hungry for yield, but alternatives such as private credit or fixed income do not offer the tax efficiency of franking credits, making listed equities an attractive franked income source for Australian retirees and superannuation investors.
The structural change: from buybacks to special dividends
Until October 2022, companies often returned excess franking credits via off-market buybacks. These were highly efficient for pension and superannuation phase investors (on 0% and 15% tax rates) and participation decisions could be made after the buyback was announced, enabling investors to lock in both franked income and positive total returns.
This changed in October 2022, when off-market buybacks were banned. The ban has created a structural shift in how companies distribute surplus capital.
In the new environment:
- Off-market buybacks have largely been replaced by special dividends
- To benefit from special dividends, investors must be positioned ahead of the announcement
- Buying after an announcement is risky (as outlined in Chart 1, of the 24 special dividends paid by companies since the ban, stocks purchased post-announcement have underperformed the market over the following 45 trading days by an average of over 4%)
Source: Bloomberg, Iress, Solaris. Basket of 24 special dividends announced from October 2022 through to 31 July 2025. Total return includes franking, cash dividend, capital performance relative to ASX200 Franking Credit Adjusted Total Return Index. Fees and trading costs are not taken into account. Past performance not reliably indicative of future performance.
A competitive advantage
This shift plays directly to the strengths of active management. With a highly resourced investment team covering more than 220 companies, our team at Solaris Investment Management maintains proprietary forecasts of income, franking, and capital growth.
This forward-looking approach enables:
- Assessment of both the ability and willingness of companies to declare special dividends
- Investment in the “green zone” of Chart 1 (above) - often 40+ days before announcements - capturing the income, franking, and capital growth benefits.
- Avoiding the “red zone” of Chart 1 - where reactive investors buy after announcements and typically suffer underperformance
Since October 2022, the Solaris Australian Equity Income Fund has been positioned ahead of an array of special dividend announcements, supporting income generation as well as capital growth - a clear demonstration of its forecasting ability and disciplined process.
This proactive approach is a competitive advantage compared with reactive income strategies.
Why this approach is attractive for Australian income investors
Our strategy is designed for tax-aware investors with a dual objective of generating quarterly income (including franking) and capital growth.
It focuses on both:
- Income generation
- Capital growth (focused on growing portfolio values into future periods supporting future income steams over 5 and 10-year horizons)
While the equity market is volatile, dividend income from Australian shares has historically outpaced inflation and provided investors with significant income as well as franking benefits.
A forward-looking framework is required for this to continue into the future.
The dividend landscape in Australia has structurally changed: off-market buybacks are gone, and special dividends now dominate the capital management plans of listed companies.
Investors must be positioned ahead of announcements; buying afterwards may generate income but is likely to erode capital and returns.
Out team at Solaris has a competitive advantage: its forecasting framework and experienced team have positioned the fund ahead of a significant number of the special dividends since 2022.
Solaris’ focus is on income generation and long-term growth: rather than “selling the farm” to generate income. Income-seeking investors need to allocate capital to productive companies to grow the “farm’s yield” for years to come.
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Charles has almost two decades of investing experience. At Solaris he is Co-Portfolio Manager for the Solaris Australian Equity Income Fund and an investor with sector expertise across the Real Estate, Building Materials and Steel sectors. Solaris is an Australian Equity Fund Manager with long track record and a truly aligned approach to investing across Core, Long-Short and Income strategies.
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This communication is prepared by Solaris Investment Management Limited ('Solaris') (ABN 72 128 512 621, AFSL 330 505) as the investment manager of the Solaris Australian Equity Income Fund (ARSN 618 961 667) (the ‘Fund’). Pinnacle Fund Services Limited ('PFSL') (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund and is a wholly owned subsidiary of Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). PFSL is not licensed to provide financial
product advice. The information contained in this communication is general information only and does not take into account your objectives, financial situation or needs. Before making a decision to acquire, or continue to hold units in, the Fund, you should consider the Product Disclosure Statement (PDS) and Target Market Determination (TMD) which are available at https://solariswealth.com.au/. For historic TMDs, please contact Pinnacle Client Services via phone 1300 010 311 or email service@pinnacleinvestment.com. Any persons relying on this information should obtain professional advice before doing so and consider the appropriateness of the information having regard to your specific circumstances. Past performance is not a reliable indicator of future performance and the repayment of capital is not guaranteed. Any opinions and forecasts reflect the judgment and assumptions of Solaris and its representatives based on information available as at the date of publication and may later change without notice. Whilst Solaris, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. To the extent permitted by law, Solaris, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the information contained in this communication is prohibited without obtaining prior written permission from Solaris.
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Charles has almost two decades of investing experience. At Solaris he is Co-Portfolio Manager for the Solaris Australian Equity Income Fund and an investor with sector expertise across the Real Estate, Building Materials and Steel sectors. Solaris...
Expertise
Charles has almost two decades of investing experience. At Solaris he is Co-Portfolio Manager for the Solaris Australian Equity Income Fund and an investor with sector expertise across the Real Estate, Building Materials and Steel sectors. Solaris...
Expertise
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