Did you get your share of the $54 billion?

Does $54 billion strike you as a lot of money?

Let me put it another way: 54,000,000,000 dollars.

Maybe we’re accustomed to seeing these kinds of staggering sums attached to government projects and proposals (and, sometimes, debts!). Maybe it’s all the election talk…

But make no mistake: This particular $54 billion represents REAL CASH. And some of it is yours!

Put another way, this $54 billion means $2,419 for every single Australian.

However, not every Australian will collect, while some others will receive an amount far in excess of $2,419. Here’s why…

With earnings season nearly complete, the investment banks’ bean counters can now tally up the total dollar amount of dividends paid out by Australian companies for financial year 2013.

And what an astonishing number it is… $54 billion, up 6% over the previous year’s figure.

Below, we’ll dig into what this number means for you, the individual Australian investor – and take a look at whatThe Australian Financial Review sees as a potentially dangerous “historical peak.”

The kind of peak, in fact, that might just be a cliff…

Why “shareholders just want cash”

There’s no question that many ASX companies are upping their payments to shareholders and paying out record dividends.

A number of high-profile names are even paying special dividends.

Suncorp (ASX: SUN), Woodside Petroleum (ASX: WPL),Coca-Cola Amatil (ASX: CCL) and Wesfarmers (ASX: WES) are a few examples of companies that have just announced special dividends.

At 50 cents a share, Wesfarmers’ special dividend alone will return nearly $600 million to investors!

As you’ve read in Take Stock recently, the big Australian BHP Billiton (ASX: BHP) recently increased its dividend, as did fellow miner Rio Tinto (ASX: RIO)… despite both companies also posting steeply declining profits.

The message from individual investors like you and me is loud and clear. Even these giant companies are responding to investor demand!

As a Credit Suisse analyst recently told The Australian Financial Review, ““We are in an environment where boardrooms recognise shareholders just want cash.”

No wonder. With the cash rate at 2.5%, and seemingly no end in sight to interest rate cuts, dividends and yield remain the name of the game.

Yet there’s a hidden downside

Shareholders just want cash, and they’re getting it. If you hold dividend-paying shares, part of this $54 billion is bound for YOUR BANK ACCOUNT.

(Don’t invest? No dividends! You’ve got to own shares to get a piece of this pie.)

It all sounds like good news, doesn’t it? Of course we want the companies we own to grow their dividends.

But we also want to own growing companies. It’s a crucial distinction. Think about it this way…

If a company doesn’t reinvest in its business — instead paying out most of the cash generated — it might be because management doesn’t expect to see a good return.

In simple terms, they don’t see a way to grow. They don’t feel confident about the future.

In which case, neither should you!

A no-growth scenario is bad news for investors like you and me. It means the status quo is all we can ever hope for… and that there may even be smaller dividends in the future, if the business shrinks.

Could this be happening to companies you own today? I don’t want to rain on this $54 billion parade, but yes, It’s possible. Read on below to see which widely held companies could see shrinking dividends in the years to come.

More than ever before, we’ve got to identify companies that can pay dividends AND grow…

“Payout levels are nearing their historical peak, reflecting tepid economic conditions and a subdued earnings outlook,” as The Australian Financial Review has put it.

By peak, they could mean cliff…

And look out below, Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC) and other favourites of many income-hungry investors…

“If the economy weakens and unemployment rises, bank dividends are tipped to be under the most pressure as bad debts rise with jobs losses in a weak credit-growth environment,” the article continued.

The Great Dividend Pie

The Dividend Pie


Today, even as you gladly note what your share of the $54 billion 2013 dividend pie is, don’t forget…

Not all dividends — recently increased or not! — are created equal. A big payout doesn’t always equal a good investment.

That could pass as a contrarian sentiment in some circles. At The Motley Fool, we just think it’s smart investing — and the sort of insight we’re always keen to share with you, our Foolish readers.

Now more than ever, the combination of growth and dividends is the holy grail of investing. That’s the sort of stock you’re looking for…

With prominent economists like Westpac’s Bill Evans still predicting two more interest rate cuts — in November and February next year, which would slash interest rates to just 2% —5%+ fully franked dividend yields are definitely not to be sneezed at.

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

Of the companies mentioned above, Bruce Jackson has an interest in Commonwealth Bank, Telstra and BHP Billiton.

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