The passive income delivered by high-yielding S&P/ASX 200 Index (ASX: XJO) dividend stocks can make a tremendous difference to your accumulated returns over time.
Especially if you opt to reinvest those dividends.
To get an idea of just how important dividends are to the overall returns from the benchmark index, just take a look at the S&P/ASX 200 Gross Total Return Index (ASX: XJT). This index includes all cash dividends paid out by ASX 200 dividend stocks and reinvested on the ex-dividend date.
Over the past five years, the ASX 200 has returned a healthy 26.0%. The Total Return Index, on the other hand, has returned 52.1%.
Now, after a bumper year in FY 2023, dividend payments from Aussie stocks have come down in FY 2024. Lower payouts from the mining and energy sectors, mirroring the retrace in commodity prices, drove a big part of that retrace.
The question facing passive income investors now is, what can we expect in 2025?
What's next for ASX 200 dividend stocks?
Darren Thompson is the head of asset management at Equity Trustees Asset Management.
Discussing the 2025 Australian equity market outlook, Thompson cautions that many top ASX 200 dividend stocks are likely to deliver lower payouts in FY 2025. He expects overall market earnings to be flat to down compared to FY 2024. And overall dividends to be "slightly down" year on year.
On the macro picture, he notes:
In Australia, although we have some wonderful global businesses, economically we are more leveraged to domestic drivers and a weakening China story than the stronger US economic thematic.
The banks and the miners
If you've been investing in ASX 200 dividend stocks, you've most likely bought at least some of the big Aussie banks and mining companies.
Indeed, if you're building a diversified passive income portfolio, I'd say they're an essential component. Meaning their FY 2025 performance will be key to the overall market returns.
"The outlook for both earnings and dividends for the domestic market is heavily weighted to the performance of banks and resources," Thompson said.
As for the big banks like Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group Ltd (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), and Westpac Banking Corp (ASX: WBC), he noted:
Bank earnings are anticipated to be broadly flat due to a combination of modest credit growth, ongoing competition restricting net interest margins, ongoing cost pressures and already cyclically low bad debt provisions.
Thompson said he expects to see lower dividend payouts coming from ASX 200 dividend stocks in the resources sector in the year ahead, "reflecting the pullback in earnings and cashflows for BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO) and Fortescue Metals Group Ltd (ASX: FMG) due to low iron ore prices".
He added:
These companies remain highly profitable, cash generative business. It is simply that iron ore prices have continued to retrace from previous cyclical highs, largely due to lower demand from China.
With income growth still anticipated among some companies in select sectors, passive income investors will want to make sure to do their research when buying new stocks in 2025.
According to Thompson:
Many sectors of the Australian market are expected to deliver earnings and dividend growth going forward. However, they are not of sufficient scale to compensate for the impact of the materials and energy sectors.
As for the combined outlook for payouts he expects from ASX 200 dividend stocks in FY 2025, he said, "The impact of these factors is such that the Australian equity markets 12-month forward dividend yield is about 3.4%, which is well below the 10-year average."
