From Credit Suisse:
In this report we note that the current forecast market wide dividend pay-out ratio is at a 21-year extreme high having trended up significantly over the past four or so years as investor demand for yield has intensified over that period (see Figure 1).
■ We also note that sell-side analysts are forecasting a peak in the pay-out ratio over the next 6-12 months (see Figure 1). Hence, based on the recent negative share price reactions to consensus interim dividend misses by high-yield darlings, WBC, ANZ and NAB, in this report we ask ourselves: Is the market ready for a decline in dividend pay-out ratios?
■ We find that the higher dividend pay-outs have been funded through increased debt and gearing rather than earnings, and that current gearing and serviceability levels are potentially indicative that corporates do not have much more wriggle room to squeeze up pay-out ratios using debt.
■ Therefore, it seems unlikely that the four-year upward trend in the market wide dividend pay-out ratio will continue in the near term, and that the dividend pay-out trajectory predicted by the analyst community in Figure 1 will likely be upon us in the next 6 to 12 months.
■ Accordingly, based on negative market reactions to the recent interim dividend misses within the yield darling, banking sector, a declining market wide dividend pay-out ratio could be a headwind for the Australian market in the near to medium term.
