The demand for greater dividends has been recognised by Australia's largest corporations which have boosted their distributions by 6.1% to $53.7 billion over the last 12 months, according to economist Matthew Sherwood from Perpetual Limited (ASX: PPT).
While bond yields and returns from term deposits have remained low in recent years, investors have sought out Australia's highest-yielding stocks as a preferred method of income. Indeed, this trend has seen companies like the big four banks, namely Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB), climb to record highs, while Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW) have also benefited.
Just last week, we saw Telstra Corporation Ltd (ASX: TLS) increase its interim dividend for the first time in eight years to 14.5c, while Rio Tinto Limited (ASX: RIO) also gave in to shareholder demands to pay an additional 25c per share, taking the distribution to $1.92 a share.
Despite these increases however, the point in time where the proportion of dividends paid out of earnings may have peaked. For instance, the banks could struggle to increase their distribution rates over the short-to-medium terms due to the new regulations being introduced which will require them to hold more capital in reserve (although CBA did just increase its payout to $1.83 a share).
In fact, the payout ratio has fallen from 64.5% to 64.3% but is still sitting above the 60% 10-year average for the index. Sherwood said: "It does look like the payout ratios have probably peaked for the cycle and that dividend growth from here will more closely reflect earnings growth, especially with the capex and asset write-down cycle well advanced in most sectors."
Foolish takeaway
While the global economy is showing definite signs of improving, investors may want to expose their portfolios to stocks which possess greater growth potential as opposed to investing solely for the dividends paid by corporations. The good news for investors is that many of these companies also pay generous dividends!
For instance, you could look at companies such as Graincorp Limited (ASX: GNC) or Mortgage Choice Limited (ASX: MOC), which each have trailing dividend yields of 4.6%, fully franked.
