Dividend week will help set the tone for the ASX

Not many people realise it but the coming week is one of the really great times to be a shareholder in Australia.

It is the absolute peak for dividend payments, with an amazing $18.8 billion being paid out to shareholders – much of that payment fully franked (or tax paid) which brings some special benefits with it.

That $18.8 billion this week is part of a mammoth $34 billion flowing to shareholders from the recent December half reporting season, with big payouts this week including those from BHP (ASX: BHP), Commonwealth Bank (ASX: CBA) and Telstra (ASX: TLS) all coming as an early Easter present on Thursday, 28 March 2024.

Shareholders growing more reliant on dividend income

Dividends have become an increasingly important source of income for shareholders – including superannuation funds – with Australia’s dividend franking system encouraging companies to pay tax and to pass on that benefit to shareholders in the form of franking credits.

They are also an important source of new funds for the Australian share market, with many shareholders ploughing their payouts back into buying more shares if they feel confident or using them to pay down debt and meet higher living costs if they are feeling less hopeful.

Indeed, despite some worries on the corporate front including lower corporate profits in some cases and rising costs, around 80% of the largest companies on the ASX this year raised their dividends.

Throwing the net a little wider, CommSec figures showed that total dividends had dropped by a tiny 2% but among companies paying a dividend, 52% had lifted payouts, 19% held them steady and 29% had cut them.

Falling profits not yet translating into lower dividends

That shows that companies on the whole feel fairly confident about their ability to pay dividends despite a fall in aggregate profits of about 35%.

Cash levels were also down by around 25%, which makes it quite remarkable that overall dividends were only 2% lower, although the pay down of debt might have played a role.

Consumer companies performed much stronger than expected

One of the big surprises of the reporting season was how strongly consumer-focussed companies performed, which went against the perceived wisdom of a sharp slowdown in spending due to rapidly rising mortgage rates.

Commonwealth was the main bank to report, being the only one with a December and June balance date.

However, analysts are generally fairly confident that dividends set to be announced by ANZ (ASX: ANZ), Macquarie (ASX: MQG), NAB (ASX: NAB) and Westpac (ASX: WBC) with their half-year results in early May should hold up well too.

Miners could be first to announce large dividend cuts

One area of interest is the large mining companies which are coming off some particularly strong years but might find themselves needing to trim down dividends should commodity prices continue to fall.

So far, the miners have held their payouts fairly high but with major commodities such as iron ore and copper falling at the moment, it is possible that there could be more dividend cuts to come in the future for mining shareholders.