The improving outlook for the global economy has been credited for the rally on the ASX, but it's also a record flood of dividends hitting the market that is probably pushing stocks higher as well.
Unless you have debt you need to pay off, most investors won't have a better place to put their dividends than back in the market – and there're a lot of dividends payments that can put to work.
This means the circa 10% jump in the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index could continue for at least a few more weeks as shareholders are paid $27.8 billion in dividends from March through April this year, according to high-profile Bell Potter trader Richard Coppleson (the guy behind the "Coppo Report").
The biggest dividend cash splash
According to his estimates, dividends paid this March and April is the highest for any two-month period in the history of the ASX and is $5.1 billion more than last March and April.
It's the large caps that are the big dividend payers (unsurprisingly), but if you are wondering who are contributing the most to the dividend cash slash – it's the miners.
Alumina Limited (ASX: AWC) leads the pack with a 194% increase in dividends paid this period compared to the same time in 2018, followed by BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) with dividend increases of over 30% each, according to the Coppo Report.
Other large caps that have lifted their dividends substantially this time include toll road operator Transurban Group (ASX: TCL), power company AGL Energy Limited (ASX: AGL) and Woolworths Group Ltd (ASX: WOW).
What's driving the dividend surge
Companies have been more conservative in spending during these uncertain times and prefer to increase profits by cutting costs or selling non-performing assets than investing to expand their businesses. This is one contributor to the big lift in dividends as many find they have more cash than they know what to do with.
But this isn't the only reason for the big uplift. A possible change in government is also prompting company boards to racket-up their dividend payouts so that they can disburse as much of their franking credits as possible.
The federal opposition Labor party said it will change the rules to stop cash refunds from franking if they take office sometime next month.
Foolish takeaway
While dividend payments could ease from here, high yielding stocks are likely to continue to find favour with investors given growing expectations that the Reserve Bank of Australia will be forced to cut interest rates later this year to fresh record lows.
Some sceptics think that income investors shouldn't be banking on the big dividend paying miners as their profits are tied to volatile commodity prices, I think its unlikely they will be disappointing on the dividend front for a while yet given the strength of their balance sheets – and assuming they don't suddenly go on an acquisition spending spree or the global economy falls off a cliff (both unlikely in my view).
But those looking for other dividend stocks to put on their radar will want to read this free report from the experts at the Motley Fool.
They've picked their favourite income generating stocks on the ASX and you can find out what these are by following the free link below.
