WEEKLY E-MAIL

24 July 2017

A CLOSER LOOK AT DIVIDEND YIELD (%) VERSUS INCOME ($)

By Bree Hallett

It is essential to appreciate that dividend yields can change over time, so a balance between companies which are not only paying rewarding dividends now, but also those which appear to be in a strong position to grow their profits and dividend yields over time is very important.

A stagnant or static dividend will over time be eroded by rising living costs. So in addition to allocating funds towards companies which currently pay attractive yields it is essential to also look for companies that have a strong history of dividend increases and long term sustainability to ensure that an income stream will grow in order to protect against inflation.

The chart below which compares the yield (%) and income ($) as well as the growth characteristics of $10,000 invested in Telstra (TLS) and Ramsay Health Care (RHC) over a 10 year period is quite interesting.

Chart 1: Income and growth form $10,000 invested over 10 years.

The difficulty is that dividend growth tends to be fastest for companies with relatively low yields. This is reasonable as sustainable dividend growth is dependent on a company’s continued success and growth. So many companies with impressive dividend growth rates are also the same companies delivering solid earnings growth. These companies typically attract investors and share price appreciation then follows.

A retirement income strategy requires a total return focus comprised of reliable and regular income, franking credits and some capital growth over the long return, seeking a middle ground between current income and dividend growth.

Bree Hallett
Financial Planner
SMSF Specialist Advisor™
Authorised Representative No. 452911

If you have any questions or comments, please email me at bree@gfmwealth.com.au

Disclaimer: This document is not an offer or invitation to any person to buy or sell any interest in or deposit funds with any institution. The information here is of a generic nature, and does not take into account your investment objectives or financial needs. No person should act upon this information without firstly seeking competent, professional advice specifically relating to their own particular situation.

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