This may help to explain the rally today on the ASX:
“Following the underperformance of Australia relative to global markets and its continued growth in dividends, Australia has now moved back to a position where it no longer looks overvalued on the basis of yield,” Goldman said in a note.
After global bond yields hit their nadir in mid-2013, yield-chasing reached extreme levels, pushing Australia’s high-dividend payers up to the point where the market looked as much as 20 percent over-valued, the bank said…
“In the period since, Australia’s under-performance as bond yields rose combined with further dividend increases have seen this yield premium disappear,” it said…
Goldman believes the 4.8 percent yield for the index will keep shares supported.
Goldman [also] believes the dividends can be sustained even though it expects this year’s earnings forecasts may slip and even if economic conditions don’t improve.
“Given historically high pay-out ratios, we expect dividends to grow at or below the growth rate in earnings, but believe they have very limited downside in the current environment,” it said…
“The mining sector remains the most likely to deliver capital management surprises,” Goldman said. “While earnings volatility is high as the commodity super cycle ends, mining firms remain focused on cutting costs and reviewing their capex budgets.”
