Dividends don't grow on trees

Dividends don't grow on trees. When headlines like Mid-tier miners join the yield play start hitting your inbox it leaves little doubt as to what is driving decisions in corporate Australia. Commsec's Chief Economist, Craig James, points out: So far 101 companies of the ASX200 have reported half-year earnings: aggregate cash balances are down 11.3% and aggregate dividends are up 7.4%. So, in theory dividend investors should be happy. But with all this capital being directed toward dividends what is happening to earnings? The team at FNArena have monitored the results of 160 companies including broker ratings and consensus target price changes. Their analysis reveals that for the companies they have reviewed ratings upgrades have been recorded on just 24 occasions with downgrades recorded on 78. As the chart from Macquarie Research illustrates, the lack of earnings per share growth has been a consistent theme in recent years. Dividends don't grow on trees and for those seeking dividends it is worth knowing where the next one is coming from.