Australian Dividend Payouts: Still Sustainable?

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This story features BHP GROUP LIMITED, and other companies.
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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.

Banks: Pushing the Ceiling

Australia’s big four banks remain the cornerstone of income portfolios, but payout ratios are pressing against historic ceilings.

In FY25, ANZ Bank ((ANZ)) is projected to pay out 73% (above its 60–65% target), National Australia Bank ((NAB)) and Westpac ((WBC)) 76% each, and CommBank ((CBA)) 79% — the top of its 70–80% target.

The sector-wide average sits at roughly 75%, mirroring pre-covid years when sustained high payouts eventually led to cuts.

“Payout ratios have already been stretched thin by existing dividend policies”, said Ralph Chen, senior research analyst for Asia-Pacific dividend forecasting at S&P Global Market Intelligence.

“The payout ratios by the respective… banks have already topped, imposing limits for the banks to increase ordinary dividends”, he added.

This slowdown comes as banks grapple with diminishing interest margins amid “fierce competition within the domestic loan market and escalating operational costs”, Chen clarified.

For now, dividends remain reliable, but growth is likely capped.

Investors should expect banks to remain stable payers, not expanders.

Telcos: A Case of Dividends vs Networks

Telstra Group ((TLS)) illustrates how dividends can reset and rebuild. From $0.30 a share in 2015, the payout was cut to $0.16, then rebuilt to $0.19 in FY25. That equates to a 75% payout ratio, supported by stable cash flows.

UBS projects further growth to $0.21 in FY26, implying a grossed-up yield of 6.2% with franking credits.

But the balance is delicate. In May 2025, the company set out a new five-year strategic plan, targeting mid-single-digit compound annual growth in cash earnings to fiscal 2030, while aiming to generate “a sustainable and growing dividend”.

Telecom analysts caution while Telstra’s payout ratios remain attractive, sustainability depends on balancing network upgrades with disciplined capital management.

They also note, “Regulatory risks are real. Wholesale NBN prices are high and could increase further, while government scrutiny on Telstra’s market power is ever-present”.

Investors should take comfort in stability, but recognise that heavy 5G and future network capex could constrain upside.

Among peers, TPG Telecom ((TPG)) has re-established regular dividends after a volatile integration period. It paid $0.18 per share in FY25 (yield 3.6%), signalling improved profitability.

Simply Wall Street notes, “The recent jump in net income and stable $0.09 dividend signals improved profitability and some resilience, but the fundamentals around subscriber growth and broadband market share remain the key short-term catalyst and risk, respectively”.

With TPG, investors gain exposure to a renewed dividend stream, though flexibility remains limited compared to Telstra.

Meanwhile, Optus, as part of Singtel, is not directly investable for ASX shareholders, but contributes to Singtel’s strong FY25 payout ratio of 82%. Optus’ capacity to support payouts remains tied to ongoing network investment amidst a highly competitive market (plus a few operational and security scandals on top).

Taken together, the sector highlights a balance of yield, re-investment, and competitive pressure. Telstra provides scale and stability, TPG offers recovery-driven growth but lower resilience, while Optus sustains strong payouts offshore.

Dividend sustainability across telcos will depend as much on market structure and execution as on historical payout norms.

Utilities & Energy: Transition Costs Bite

If miners are pivoting towards re-investment, utilities are already deep into it. AGL Energy’s ((AGL)) dividend has dropped from $0.63 in 2015 to $0.48 in 2025 as cash is redirected to renewables, batteries, and transmission. The sector faces -$90bn in capex requirements over the next decade.

And because of its close ties to government frameworks and policy-driven preferences which heavily influence where capital flows, “clarity and consistency in policy settings will be critical for unlocking further growth in this area”, states RBC Capital.

For investors, this sector is the most exposed to payout pressure, as transition costs and regulatory oversight leave little room for generosity.

Cracks and Safe Havens

Australia’s dividend culture is not disappearing, but it is certainly evolving. Boards are balancing the enduring appeal of franked dividends with the reality of higher funding costs and rising capex bills.

-Safe(r): Banks, despite stretched ratios, continue to pay, though growth is capped. Telcos look stable as cost discipline improves.

-Cracks: Miners are shifting rapidly into reinvestment mode, while utilities remain under pressure from transition costs and policy risk.

Within such an environment, Morningstar cautions investors should assess payout ratios relative to reinvestment needs and sector-specific risks rather than chasing historical yields alone.

For income investors, the winners will be companies that balance cash returns with disciplined reinvestment — protecting today’s dividends without mortgaging tomorrow’s.

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