Australia is coming last on dividends, but miners are stepping up
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It’s official – Australian dividends are the weakest in the developed world.
London-based global asset management firm Janus Henderson said payouts slumped 2.2 per cent to $US24.5b ($33.5b) in the third quarter.
By comparison, on a global basis, payouts climbed 5.1 per cent to a third-quarter record of $US354.2b.
The good news is Australia’s miners are stepping up their game to try and turn it all around. And historically, the third quarter is the most significant in Australia, Janus Henderson noted.
Australia’s slump was largely thanks to telecommunications giant Telstra paying $US700m less year-on-year and the dominant banks, which account for almost half the domestic dividends each year, seeing no growth.
“Since the banks already pay out a large share of profits, there is little room for growth — especially given profits are under pressure and the impacts of the Royal Commission,” Janus Henderson said.
The weakening Australian dollar was also a significant headwind during the quarter.
But the big miners have been upping their dividends. BHP (ASX:BHP) raised its payout by $US1b, an increase of two thirds, and Rio Tinto (ASX:RIO) increased its dividend by a fifth.
The adjustment saw BHP make it back into the top 20 world’s biggest dividend payers for the third quarter after two years of being absent.
The energy giants have also been doing their bit, with Woodside Petroleum (ASX:WPL) upping its shareholder payout by a fifth on the back of higher oil prices.
Globally, the basic materials sector, which includes mining, raised dividends by more than 28 per cent to $US24.2b compared to the same quarter of the previous year.
This was led by the metals & mining sector, which paid nearly 39 per cent more, returning $15.7b to shareholders in the third quarter.
“The Australian market remains attractive to income investors given it is one of the highest yielding markets globally,” said Jane Shoemake, client portfolio manager, global equity income at Janus Henderson.
“However, the income generated by the market is highly concentrated in the financial and basic materials sectors, so domestically-focused investors are over-dependent on the banks and major resources companies for dividends.”
But Ms Shoemake warned that while the resources sector offered investors attractive yields, dividend payments would be volatile over time given the reliance on underlying commodity prices and the companies’ largely fixed payout ratios.
Indicating the global turnaround in the resources sector, miners paid a whopping 406.5 per cent more in the third quarter of this year than they did in the same quarter of 2016, when total dividends amounted to $US3.1b — the lowest dividend paying third quarter in the past six years.
“At the bigger end of town, I think BHP and Rio’s decisions around dividend policy were a major catalyst of the market in early 2016,” Lion Selection Group director Hedley Widdup told Stockhead.
“In 2015 there were headlines about their finances – especially debt levels against the sustainability of their dividend policies.
“The market seemed to make up its mind that the dividend policies would be changed (and made sustainable) not long before they were announced, and there was almost a sigh of relief: phew – the major miners are financially disciplined again!”
Dividends flow from juniors
More junior miners are also paying dividends.
Lithium miner Neometals (ASX:NMT) paid a dividend of 1c per share (about $5.4m in total) in June this year.
The money came compliments of a 13.8 per cent ownership in the producing Mt Marion lithium operation near Kalgoorlie, WA.
The dividend marks the third consecutive dividend payment made by Neometals in as many financial years, with cumulative dividends to shareholders now amounting to about $27.9m.
In September, gold stock Rand Mining (ASX:RND) handed over a 10c-per-share dividend to its shareholders, following a maiden dividend payment in 2017.
The company followed that up with news of another dividend payment, amounting to $1.25 per share, that was paid in early October.
Its major cash earner is the East Kundana joint venture between Northern Star Resources (ASX:NST) (51 per cent), Tribune Resources (ASX:TBR) (36.75 per cent) and Rand (12.25 per cent) in the Eastern Goldfields of WA, near Kalgoorlie.
Tribune, meanwhile, revealed in September it would pay a special dividend of $3.50 per share, worth a total of $175m, funded through the sale of its accumulated gold bullion from the East Kundana project.
Mineral sands miner Mineral Commodities (ASX:MRC) paid out an interim dividend of 0.6c per share in October, on the back of $US28.6 million in revenue from its Tormin project, on the west coast of South Africa.
The company is looking to expand Tormin, and develop the Munglinup graphite project, near Esperance in WA, as it looks to capitalise on the fast-growing sustainable renewable energy storage and electric vehicle revolution.
Mineral Commodities says the interim dividend is aligned to the 1.2c per share dividends paid for each of the last two years.
The company says it expects to continue to pay dividends within the context of its overall capital management program.
Tasmanian iron ore stalwart Grange Resources (ASX:GRR) paid an interim dividend of 1c per share, totalling $11.6m, in the third quarter on the back of higher profits.
Phosphate miner CI Resources (ASX:CII) paid shareholders dividends totalling 10c per share for FY18, on the back of a $21m profit.
Thriving coal miner Universal Coal (ASX:UNV) paid out 0.2c per share in FY18.
Universal, which has thermal coal operations in South Africa, is fielding its third takeover attempt after receiving an indicative bid in September.
The company plans to increase its shareholder returns as it ramps up its cash flow, boss Tony Weber told Stockhead last month.
“Every year has been growth in this company and we haven’t raised money from the shareholders for the last I don’t know how many years,” he said.
“We’ve been paying dividends for the past two years. It’s a progressive dividend and we intend to increase that going forward.”