It's safe to say that the pandemic had a significant impact on dividend investors around the world. Many ASX companies cut or completely suspended their payments during the pandemic, leaving shareholders with little to no income.
However, following a broad economic reopening, dividends are flowing back in record numbers. According to the latest Janus Henderson Global Dividend Index report, dividends for the 12 months ending March 2022 have reset record highs in Australia — reaching $97.9 billion in payments.
This is great news for dividend investors! Yet there is one key piece of information that every investor should be aware of…
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A major risk to Aussie dividend investors
The good news for Australian dividend shares is there has been an incredible bounce back in the total value of payments made to shareholders. This phenomenon has played out at a global level in the last 12 months with dividends rising a further 11% in the first quarter of 2022 to a new record of $302.5 billion.
Notably, Australia joins a select group of seven countries that have now surpassed their pre-pandemic dividend levels. For reference, the $97.9 billion of profits paid to shareholders represented a bonkers increase of 82% from the prior year.
Without a doubt, this is all great news for income investors. But it also comes with an important consideration… sector concentration risk.
Based on Janus Henderson's findings, around 94% of the recovery in Australian dividends is attributable to banking and mining. Furthermore, the two sectors constituted roughly 81% of the total sum of profits paid out over the 12-month period.
Possibly more concerning is the fact that BHP Group Ltd (ASX: BHP) made up 32% of the total $97.9 billion handed out to Aussie investors. This meant the diversified mining giant claimed the title of the world's biggest dividend payer.
Janus Henderson highlighted the high reliance on a small number of ASX companies, stating:
Australia's high level of dividend concentration leaves domestic investors far more heavily dependent on just a handful of companies for a very large portion of their dividend income than in any comparable country. What's more, all the top five are in either mining or banking sectors.
Providing some caution, the asset manager mentioned this concentration puts domestic Australian investors at risk of dividend reductions related to company-specific incidents.
Shopping outside the miners and banks
While banks and mining companies featured prominently in the top 20 dividend shares, there were a few options for investors outside of these sectors. For example, other noteworthy ASX shares included:
- Wesfarmers Ltd (ASX: WES)
- Telstra Corporation Ltd (ASX: TLS)
- Woolworths Group Ltd (ASX: WOW)
- CSL Limited (ASX: CSL)
- Coles Group Ltd (ASX: COL); and
- Transurban Group (ASX: TCL)
Though these other ASX shares do not offer the same level of returns as their banks and mining counterparts.
