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Retail investors drop smaller non-dividend paying stocks

Mum and dad investors have drastically reduced their direct shareholdings in the top 300 stocks listed on the ASX, according to a new report, released yesterday.

Analysis by the Australasian Investor Relations Association (AIRA) suggests that small shareholders have been dumping their equity holdings since before the global financial crisis in 2008. Institutional holders now own more than 90% of the average ASX 300 stock.

In 2002, retail shareholders accounted for 15.1% of the equity of the top 300 companies, but that has now fallen to 9.9% of the issued capital in 2011, with institutions picking up the majority of the fall.

The findings counter previous studies that showed Australia had a strong culture of small shareholder engagement in local stocks. University of Melbourne professor, Dr Carole Comerton-Forde said, “The ASX share ownership surveys of the 1990s showed increasing levels of retail ownership. However, our analysis of annual report data suggests that, on average, this trend has been reversing since at least 2002.”

Despite their being fewer shareholders, the leading Australian listed companies still have substantial numbers of small shareholders. Some 97.1% of shareholders in the average ASX 20 stock are small shareholders, but own only 25% of the company.

Retail investors remain concentrated in the larger, higher yielding companies included in the ASX’s top 20 companies, including Telstra Corporation (ASX: TLS), the big four banks, AMP Limited (ASX: AMP), Woolworths Limited (ASX: WOW) and Wesfarmers Limited (ASX: WOW).

The decline has coincided with the growth of superannuation, with much of it held by managed and corporate super funds, consolidation of industries, such as the takeovers of Coles and AXA, and moves by companies to buyback unmarketable parcels of shares.

Moves by retail investors to setup their own self managed super funds is also likely to have reduced the average ownership in ASX 300 companies outside the top 20 stocks, as mum and dad investors focused on the larger higher-yielding, supposedly safer stocks.

Foolish takeaway

Interestingly, the average number of shareholders in the ASX 51 – 100 companies more than doubled, but for the ASX 201-300 stocks, retail shareholders’ share of equity halved from 11.7% to 5.9%.

Despite the overall trends, small shareholders remain selective about the companies they invest in and showed a preference for large market cap companies that paid consistent, fully-franked dividends.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get 3 Stocks for the Great Dividend Boom in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King owns shares in Woolworths.

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