Our top 10 dividend cash cows

Investors in these blue-chip stocks would have achieved an average 9.3% annual return over the past decade, and at least the value of their initial investment in dividends.

Summary: A league table of Australia’s biggest companies shows that, over the past 10½ years, investors would have achieved an average annual return of 9.3% and received back the value of their initial investment in dividends alone. And aside from three of the major banks making up the top five, two other big companies appear to have done a better job at growing their dividends.
Key take-out: Australia’s best dividend payer over time has been Commonwealth Bank. From an initial investment of $10,000 in 2004, investors in the CBA would have received almost $14,000 in gross dividends from their shares.
Key beneficiaries: General investors. Category: Shares.

An analysis of Australia’s biggest companies shows that, over the past 10½ years, investors would have achieved an average annual return of 9.3% – even incorporating the period of the global financial crisis – and almost doubled their initial investment on the basis of dividends alone.

Commonwealth Bank leads the way, followed by Westpac. But retailer Woolworths is close behind, as is ANZ, and in fifth spot, surprisingly, is mining giant BHP Billiton.

While historical data has its limitations as a source of predicting the future, it remains interesting to consider and contains a number of key lessons for investors. Looking back to the start of 2004, and assessing the performance of the biggest 10 companies in the sharemarket as dividend payers, there are three things to be learned.

  1. Firstly, two companies that have often paid high dividends yields over this period, Telstra and National Australia Bank, have failed to keep pace with less-regarded dividend companies like BHP and Woolworths – who have done a much better job of growing their dividends over this period of time.
  2. Secondly, dividends have, on average, provided a total return nearly equal to the initial 2004 investment – so they have been an important source of returns over this period.
  3. And thirdly, even over the period of the global financial crisis, when investment returns have been under significant pressure across many asset classes, the return from sharemarket dividends has been reliable, and superior to the interest return from a cash investment.

The way that dividends have been compared is as follows: A $10,000 investment was made into each of the current 10 largest companies in Australia at the start of 2004. I have then calculated the total dividends paid per share between then and now, and have then done the same calculation for gross dividends – cash dividends plus franking credits. This is the more important calculation, as it reflects the true value of the benefit of the dividend. A gross dividend of $200 is equal to $200 of interest income regardless of your income tax bracket, so it also allows the best comparison between investments.

The following tables and graphs show the cash dividends and gross dividends, sorted from highest to lowest:

RankJan-04
Price
Number of Shares
Owned With
$10,000 Investment
Cash Dividends
Per Share
Since Jan 2004
TOTAL CASH
dividend for
$10,000 Investment
1Commonwealth Bank$29.52339$28.45$9,637.53
2Westpac$15.91629$14.36$9,025.77
3Woolworths$11.78849$9.86$8,370.12
4ANZ Bank$17.68566$13.58$7,681.00
5BHP Billiton$12.15823$8.45$6,954.73
6Wesfarmers$26.38379$17.75$6,728.58
7Telstra$4.832,070$3.11$6,428.57
8National Australia Bank$29.92334$18.14$6,062.83
9CSL$17.78562$7.91$4,446.12
10Rio$37.38268$15.37$4,111.82


RankJan 2004 PriceNumber of Shares
Owned With
$10,000 Investment
Gross (cash plus franking credits)
Dividends Per Share
Since Jan 2004
TOTAL GROSS dividend
for $10,000 Investment
1Commonwealth Bank$29.52339$40.64$13,768.29
2Westpac$15.91629$20.52$12,894.41
3Woolworths$11.78849$14.09$11,959.25
4ANZ Bank$17.68566$19.54$11,054.30
5BHP Billiton$12.15823$12.08$9,938.77
6Wesfarmers$26.38379$25.36$9,612.21
7Telstra$4.832,070$4.50$9,310.56
8National Australia Bank$29.92334$25.91$8,661.19
9Rio$37.38268$21.96$5,875.87
10CSL$17.78562$8.52$4,794.26


The lessons that people might draw from this data will be different for everyone. One of the key lessons for me comes from seeing shares like Woolworths and BHP, probably not widely regarded as great dividend shares, filling two of the top five places. Both of these companies have done a great job of growing their dividends. BHP’s first two cash dividends (in 2004) totalled 25 cents. Its two most recent dividends totalled $1.30. Similarly, Woolworths started with dividends of 45 cents in the first year, and has grown these to $1.36 in the most recent year.

The second lesson comes from the average value of dividends over the 10-year period. For this group of blue-chip companies, the average gross dividend over 10½ years, for an initial investment of $10,000, has been $9,790. The dividend alone has almost allowed people to double their money.

Importantly, this dividend has not been assumed to be re-invested each year. If it had been, then the dividends would have increased even more over the period, and the total dividends paid would have been much higher. It is worth keeping in mind that this period did include the GFC and a period of time when shares fell in value (in Australia) by around 50%. Yet, the returns from the dividends from these large companies was satisfactory.

This leads to a third lesson, related to this satisfactory performance. It would have taken an average cash return over this period of 9.3% per year (keeping in mind that I have not assumed that dividends were re-invested but spent each year) for a cash account to provide a similar interest return to the gross dividends from shares. A 9.3% a year return would equal $930 each year which, over 10.5 years, would equal the average gross dividend received from this group of 10 companies. Once again, growth is a factor here because companies generally grow their dividends over time and they are able to provide relatively attractive returns compared to a cash investment.

Conclusion

While historical data certainly has limitations, it is interesting to look at the dividend-paying history of companies over the last 10 years and consider how they have coped with the GFC.

For most investors, the answer would be that they will have provided a largely satisfactory stream of dividends over this time. An interesting twist might be the way that some companies that have done a particularly good job of growing dividends, like BHP, can provide a better income return than a traditional ‘dividend favourite’ like Telstra.


Scott Francis is a personal finance commentator, and previously worked as an independent financial advisor. The comments published are not financial product recommendations and may not represent the views of Eureka Report. To the extent that it contains general advice it has been prepared without taking into account your objectives, financial situation or needs. Before acting on it you should consider its appropriateness, having regard to your objectives, financial situation and needs.