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All Ordinaries index not most useful

The monitoring of Australian equities performance can be performed in a more meaningful manner by using an alternative measure to the All Ordinaries Index, a leading economist has suggested.

“On the news every night we all hear about the All Ordinaries Index or the ASX 200. I really think what the ASX (Australian Securities Exchange) should be doing is promoting the All Ordinaries Accumulation Index,” CommSec chief economist Craig James told attendees at the recent smstrusteenews SMSF Trustee Empowerment Day 2018.

His reasoning behind this view is that the All Ordinaries Index is only a reflection of share prices and as such is at its most significant when an investor is looking to either buy or sell a stock. The measure, as a result, has less relevance for individuals who are holding their current positions, James said.

“What’s more important then is the dividends which have been applied by their companies. The All Ordinaries Accumulation Index is measuring dividends as well as capital appreciation,” he said.

With regard to the Australian equities market, he described the current climate as being very good for investors seeking dividends.

“This is very much a dividend bonanza at the moment. Something like 90 per cent of Australian companies are paying out a dividend,” James noted.

“Something like 90 per cent have either maintained or increased dividends compared with 12 months ago, so it is a very favourable development.”

To emphasise this point, he used Harvey Norman as an example of a share that has changed its characteristics in line with the dividend-dominant environment.

“Harvey Norman has an 8.6 per cent dividend yield in the current environment. Who would’ve thought, considering most of the time Harvey Norman was focused on its share price changing rather than its dividends, but now it’s paying a fairly useful dividend as well,” James said.

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