For more than a decade, investors became rich from ASX growth shares — but all that changed almost overnight late last year.
As the very infectious Omicron variant of COVID-19 struck the world in November, share markets turned against growth, and haven't really looked back since.
In such an environment, The Motley Fool has certainly noticed a big change in attention towards dividend shares.
The logic among investors seems to be that if capital growth is so anaemic, you might as well grab some income to make up for it.
However, the team at Wilsons had a stark warning for dividend hunters.
"However, high yield stocks have proven to underperform the market on a long-term view," its recent memo to clients read.
"We therefore believe a dividend strategy cannot solely rely on high yielding stocks to be successful."
The checklist for quality ASX dividend shares
For Wilsons analysts, it's imperative to search for businesses that grow dividends over time. That might mean sacrificing some yield now.
"We think selecting a dividend strategy by its initial yield is a poor choice because the growth of the dividend over time ultimately determines the income payouts in future years."
Also, a high current dividend yield tells nothing about the business performance or its outlook.
"Therefore, we think it is also paramount to consider companies based on their competitive positioning and industry backdrop, their earnings quality, and their long-term growth outlook."
Considering this, the team screened the S&P/ASX 100 [XTO] (ASX: XTO) for businesses that met the following criteria:
- Financial year 2025 dividend yield greater than 2%
- Positive or flat three-year forecast dividend per share compound annual growth rate
- Balance between growth and yield
- Predictable earnings supported by "relatively defensive demand" through economic cycles
- Decent moat or industry outlook
- No iron ore miners, which Wilsons believes to be in structural decline
Using this screen, the team came up with 22 ASX shares that are providing 2023 financial year yields above 3%:
- Westpac Banking Corp (ASX: WBC)
- Australia and New Zealand Banking Group Ltd (ASX: ANZ)
- Scentre Group (ASX: SCG)
- APA Group (ASX: APA)
- Insurance Australia Group Ltd (ASX: IAG)
- National Australia Bank Ltd (ASX: NAB)
- Ampol Ltd (ASX: ALD)
- Transurban Group (ASX: TCL)
- Telstra Corporation Ltd (ASX: TLS)
- Woodside Energy Group Ltd (ASX: WDS)
- Mineral Resources Limited (ASX: MIN)
- Wesfarmers Ltd (ASX: WES)
- Medibank Private Ltd (ASX: MPL)
- Macquarie Group Ltd (ASX: MQG)
- Domino's Pizza Enterprises Ltd (ASX: DMP)
- Charter Hall Group (ASX: CHC)
- Carsales.Com Ltd (ASX: CAR)
- Treasury Wine Estates Ltd (ASX: TWE)
- ALS Ltd (ASX: ALQ)
- Steadfast Group Ltd (ASX: SDF)
- Woolworths Group Ltd (ASX: WOW)
- Seek Limited (ASX: SEK)
"Overall, we think it is worth taking a holistic view of total return when considering a dividend strategy," read the memo.
"Investors should adopt a total return approach when selecting stocks for their portfolios by thinking long-term and understanding that earnings growth will support long-term dividend income."
