Say G’Day to Australian Dividends

March 11th at 9:00am by Todd Shriber

As has been well-documented, global dividends reached $1.03 trillion last year.

Emerging markets pitched in on that growth, contributing $1of $7 of that total, according to Henderson Global Investors. U.S. stocks were prodigious raisers of payouts as well with dividends paid by S&P 500 members rising to a record of nearly $312 billion. [Inflation Fighting With Dividend Growth ETFs]

Investors looking for another developed market dividend destination should consider looking down under to Australia, the world’s 12th-largest economy. Citing the Henderson Group, Adam Haigh for Bloomberg reports Australian companies paid $40.3 billion in dividends last year, nearly double the amount paid in 2013.

That’s the largest increase among the 10 biggest developed equity markets and compares with a 43 percent increase in payouts worldwide in that period, Bloomberg reported. Although that is small piece of the aforementioned $1.03 trillion pie, the iShares MSCI Australia ETF (NYSEArca: EWA) and the WisdomTree Australia Dividend Fund (NYSEArca: AUSE) remain compelling as dividend growth options. Year-to-date, EWA, the largest Australia ETF, is up 5.4% while AUSE is up 6.3%. EWA has a trailing 12-month yield of 4.59% while the WisdomTree Australia Dividend Index, AUSE’s underlying index, yields 4.32%.

In either case, those numbers are more than double the paltry 1.8% trailing 12-month yield on various S&P 500 index ETFS. In the third quarter of 2013, Australia’s average payout ratio was 70%, more than double that of the S&P 500. [Aussie Stocks Look Inexpensive]

Due to weak global demand, Australian mining companies are trimming costs and could come under pressure from investors to use some of that conserved cash to bolster payouts, Bloomberg reports. Those firms include mining giants BHP Billiton (NYSE: BHP) and Rio Tinto (NYSE: RIO).  EWA allocates 18.5% of its weight to the materials sector.

AUSE features a weight of 14.1% to materials names. One reason Australian companies have not been shy about raising dividends is the strong Australian dollar makes it difficult for these firms to reinvest in their businesses.  Earlier this year, Goldman Sachs said Australia’s mining sector could surprise with dividend hikes this year due to payout ratios that are well below the national average. That was after the bank forecast dividend hikes from Australia’s largest banks. [Keep an Eye on Australian Dividends]

Financial services stocks account for almost 50% and 20% of EWA and AUSE, respectively.

Foreign investors already know about the allure of Australian dividends. About $9 billion of the country’s payouts through the third quarter of 2013 went to foreign investors, Bloomberg reported, citing the Australian Bureau of Statistics.

iShares MSCI Australia ETF

Tickers

EWA