Dividend inflection point may be approaching

Australian companies could soon be at a point of scaling back the dividends they are declaring for shareholders in favour of greater reinvestment of profits, a senior portfolio manager has said.

“I wonder are we getting to the point where companies will need to start reinvesting to grow and will the market in fact start to really reward investment into projects as opposed to just handing back the cash,” Perennial Value Management senior portfolio manager Stephen Bruce said.

Bruce pointed out that until now there had been no need for reinvestment as the market had been rewarding the payment of dividends and share buyback schemes.

However, the shift the Australian economy may be about to experience is the element Bruce said had swayed his opinion.

To this end, he said an increase in interest rates would narrow the gap between dividend yields, term deposits and fixed income yields, potentially making dividend payments less attractive.


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