Australian Dividend Payouts: Still Sustainable?

Australia | 11:15 AM

It's no secret, dividends are woven into the DNA of Australian investing but not all dividend payers are able to sustain their payouts. Time to mind the differences?

By Lily Brown

Dividends are woven into the DNA of Australian investing. The ASX200’s payout ratio averaged 128.5% in 2024, one of the highest globally and far above pre-pandemic norms. That compares with yields of 3.7% locally versus 1.4% on the S&P 500 and 2.7% across Asia-Pacific benchmarks.

For retirees and self-managed super funds (SMSF), fully franked dividends remain not just attractive but essential. “Franking credits are great… It’s a simple fact that $1 of franking credit is worth the same as $1 of cash”, says Michael Price, portfolio manager at Ausbil Active Dividend Income Fund.

The central question is not whether dividends will remain important —they will— but whether current levels can be sustained in a world of higher debt costs, rising re-investment needs, and subdued earnings growth.

The answer is uneven. Pressure is already visible in company results, with payout ratios topping long-run ranges in some sectors while others cut or re-invest.

That makes a sector-by-sector look essential. Miners, banks, telcos, and utilities all face different constraints and choices, from capital-hungry transitions to policy risk and competition.

Understanding those differences is key for investors to judge which dividends are genuinely safe, which are stretched, and where cracks are likely to appear.

Miners: From Cash Gushers to Capital Discipline

The resources sector has long underpinned Australia’s dividend culture, but the era of “cash gusher” payouts is moderating.

BHP Group’s ((BHP)) final dividend for FY25 was set at US$0.60 per share, a 60% payout ratio and well above consensus expectations of a 50% payout. The surprise lifted shares even as profits hit a five-year low.

Historically, BHP has paid out around 70% of earnings, but that ratio is now being pared back as capital spending climbs on copper and iron ore.

Rio Tinto ((RIO)) shows the same pattern: shareholders received a US$2.25 (A$3.55) final dividend earlier this year after the miner posted weaker than expected profits for 2024. 

Chief CommSec Economist Ryan Felsman wrote, “BHP, Rio Tinto and Fortescue (slashed) their dividends amid falling profits, declining capital returns and rising capital expenditure”.

For investors, the shift re-frames miners from pure income plays to total-return stories where dividends are variable, not fixed.