If the experts are right and dividends are likely to form the bulk of our returns from ASX shares over the coming years, then how do we find reliable dividend payers?
Here are three things to consider in your research.
ASX dividend history
Most ASX companies seen as reliable dividend payers want to keep it that way.
They deliberately nurture this reputation as a way of attracting a steady flow of income investors.
Therefore, they are motivated to pay relatively high dividend yields and raise their dividends regularly.
Washington H. Soul Pattinson and Co Ltd (ASX: SOL) and Sonic Healthcare Ltd (ASX: SHL) are among five examples of ASX 200 shares that have raised dividends for 10 years or more.
If you're interested in international shares, here are five NASDAQ stocks that have done the same.
ASX 200 bank shares are also very well-known for being generous dividend payers.
Bear in mind that during the COVID-19 pandemic, many dividend shares temporarily ceased payments.
Company payout ratios
The payout ratio is the percentage of earnings a company pays out in dividends.
Some companies set this in stone by declaring a long-term dividend payout policy.
They do this to give ASX dividend investors extra confidence to invest.
Typically, you want a company to keep its payout ratio between 25% and 50%.
A payout ratio that's too high may mean the company is paying more than it can afford.
It could be funding the dividend at the expense of business growth or balance sheet health.
Ultimately, that could lead to a dividend cut in the future.
Businesses with strong free cash flow and reliable earnings are good options for dividend investors.
ASX dividend yield
The yield is the annual dividend payment expressed as a percentage of the share price.
So, if you're researching ASX dividend shares, use the stock's most recent annual payment (there are usually two six-monthly payments comprising the annual total) and today's share price to do your sums.
ASX shares investors typically consider a 4% yield pretty solid, especially with full franking.
But with savings accounts now returning more than 5%, you might want to aim a bit higher.
Stockland Corporation Ltd (ASX: SGP) shares and Westpac Banking Corp (ASX: WBC) shares are among nine examples of ASX 200 stocks that brokers expect to pay 5% yields or more in FY24.
Brokers expect Westpac to pay the highest yield of the ASX 200 bank shares in FY24. You can check out a full list of anticipated dividend yields for all bank shares in FY24 in our article here.
If you enjoy the security of investing in large companies, Woodside Energy Group Ltd (ASX: WDS), Fortescue Metals Group Ltd (ASX: FMG) and BHP Group Ltd (ASX: BHP) have the highest trailing dividend yields of the ASX 200 large-cap shares at just under 11%, 10%, and 9%, respectively.
ASX 200 mid-cap shares will give you a higher yield, but they're smaller companies.
Two ASX coal shares top the list of 10 mid-caps with the most generous trailing yields at 26% and 20%.
While researching, just remember a trailing dividend yield reflects the most recent annual dividend payment.
Next year's dividend payment might be different.
This is especially the case with mining stocks. This is because they're 'price takers', meaning their revenue and profit goes up and down in line with commodity prices.
Obviously, high yields are attractive, but you want to make sure they are also sustainable.
Sometimes a yield goes artificially high simply because the share price has dropped. You need to find out why that share price fall has occurred before considering investing.
