Take advantage of the dividend recovery story via ETFs


Kanish Chugh

A feature of the company reporting season that has just ended was the recovery in dividend payout levels, after the cautious approach companies took last year, as well as the additional release of franking credits through special dividends and share buybacks.

Total dividends announced totalled $40.9 billion, an increase of 70%, with 60% of reporting companies increasing their dividends.

A challenge for investors seeking dividend income is not just to pick stocks that have paid a high dividend on a one-off basis, but to identify companies that are paying sustainable and growing dividends.

ETF Securities’ fund focused on equity income, ETFS S&P/ASX 300 High Yield Plus ETF (ASX Code: ZYAU), took full advantage of dividend recovery story with a return of 2.7% in August and 17.5% over the past six months.  At the end of August, the S&P/ASX 300 Shareholder Yield Index was yielding 4.17%, compared with a yield of 2.99% for the S&P/ASX 200.

ETF Securities Head of Distribution Kanish Chugh says that for inclusion in the Index companies must have free cash flow in excess of the amount returned to investors and must have non-negative dividend per share growth.

Compared with the sector allocations in the S&P/ASX 300, the S&P/ASX 300 Shareholder Yield Index is overweight real estate, communications services, utilities, consumer discretionary, information technology, energy and consumer staples. It is underweight industrials, materials healthcare and financials.

He says ZYAU is one of the few Australian equity ETFs in the market at the moment that does not have any of the big four banks, which gives investors a diversification opportunity.

Currently, financial exposure in the ETF is through stocks like Computershare, ASX Ltd, Pinnacle and Janus Henderson.

Top stocks in this portfolio include Goodman Group, ASX Ltd, Sonic Healthcare, Charter Hall Group, Coles Group, Telstra Corp, Dexus and Fortescue Metals.

Chugh says the reopening theme was another feature of the reporting season. “Companies such as Coles benefited from staying open and picking up strong demand. Domino’s was a strong contributor in the past month.”

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