Leanne Pan
Dividend stocks continue to surge in popularity as franking credits were left untouched in the Federal Budget, but investors must look beyond yield for long-term success, according to a dividends investing expert.
Leanne Pan, Portfolio Manager for the Prime Value Equity Income (Imputation) Fund, which debuted in 2001 and has consistently outperformed its benchmark, said franked dividends have delivered valuable long-term performance even when growth has been in vogue. But focussing on total returns is important to avoid dividend traps, she said.
“Dividend stocks have ridden a tailwind for much of this year, starting with the ‘Halo’ trade (where investors targeted ‘heavy asset, low obsolescence’ stocks), and continuing with franking credits looking more attractive following CGT changes.
“Add to that a strong reporting season, which exceeded expectations. The outlook for dividends looks healthy, and should be a valuable contributor to investor portfolios.
“But as always with dividends the caveat is to look beyond headline yield because it only tells a part of the story.
“Investing for total returns is a more sustainable strategy over the long-term, and is arguably more important as dividends become more attractive to investors”, Ms Pan said.
Investors can benefit from looking ‘under the hood’ of dividend stocks, to determine other factors such as leverage, cash flow, and company management. “We need to keep an eye on valuations because investing in yield at any cost can create a drag on performance.
“A high yield might look attractive on the surface, but it’s important to understand the quality of the underlying business, its management and its leverage.”
Ms Pan said dividend rates can be manipulated. “Focussing on total return creates a discipline to avoid buying into potential dividend traps where the headline yield is attractive, but the underlying company performs poorly.
“When you target stocks with good management, good cash flow, and healthy long-term prospects, you increase the chances of consistent long-term performance.”
The Prime Value Equity Income (Imputation) Fund has returned 13.7% per annum net of fees for the last three years to 31 August 2026, which increases to 15.4% per annum net of fees when franking credits are included. It has returned 10.2% per annum net of fees since inception in October 2001 to 31 August 2026, which increases to 12.3% per annum net of fees with franking credits included for the same period.
Prime Value Asset Management was founded in 1998 and is part of an investment group including Shakespeare Property Group, managing circa $3 billion in equities, income securities, direct property and alternative assets.