DIVIDEND STOCKS
IN AUSTRALIA

Dividend stocks are shares in companies that distribute a portion of their earnings to shareholders in the form of dividends. Investing in dividend stocks on the Australian Securities Exchange (ASX) can be a rewarding venture.

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The Australian stock market presents unique opportunities for all types of investors. Those looking to follow dividend investing strategies are well catered for, and these are the important factors, tax considerations and subtle nuances you need to know if you are going to optimise your returns.

What are Dividend Stocks?

Dividend stocks are shares in companies that distribute a portion of their earnings to shareholders in the form of dividends. These payments are typically made on a regular basis, such as quarterly or annually, providing investors with a steady income stream.

The decision on whether a dividend is paid is made by the directors of a company. Those directors will determine the amount and timeline of any dividend payments and at their discretion can suspend all dividend payments and retain surplus capital within the company instead of distributing it to shareholders.

Definition and overview

At their core, dividend stocks represent a share of a company’s profits distributed to its shareholders. Companies that pay dividends are often well-established, financially stable, and have a track record of profitability. 

In Australia, popular dividend stocks can be found in sectors such as banking, telecommunications and utilities, where companies often generate consistent cash flow. Examples include the big banks such as the Commonwealth Bank of Australia or Westpac Banking Corporation, Telstra and AGL Energy.

How dividend stocks function

The process of investing in dividend stocks involves purchasing shares in companies that have a history of paying dividends. Once you own these shares, you become eligible to receive dividend payments. These payments can be reinvested to purchase more shares or taken as cash, depending on your investment strategy.

Benefits and Risks of Investing in Dividend Stocks

The payment of future dividends is never guaranteed. However, some stocks are regarded as being likely to continue to pay dividends on a regular basis. If this happens, investors can benefit in various ways. All investing involves a degree of risk though.

How to Identify Good Dividend Stocks

With dividend stocks, it is important to consider the consistency of dividend payments as well as the size of recent payments. Dividend investing is often regarded as being a long-term buy-and-hold strategy, so the techniques used to spot an appropriate target need to adopt a long-term view.

Key financial ratios to consider

Certain metrics can be useful when evaluating dividend stocks. These include the dividend yield ratio, payout ratio, and earnings growth.

The dividend yield ratio, for example, considers dividend payments in relation to the current stock price. The dividend payout ratio measures the percentage of a firm’s spare cash that is distributed to shareholders or kept in company reserves, and earnings growth offers clues as to what future dividends payments might be.

Research and due diligence strategies

Effective research and due diligence are the cornerstones of successful investing in dividend stocks. Explore how to use fundamental and technical analysis for evaluating market opportunities.

Investing in Dividend Stocks with eToro

The process of investing in dividend stocks starts with signing up with a trusted broker such as eToro and then following the steps required to access the market and trade.

Setting up an account

Opening an account with eToro is a straightforward process. Registration is done online and takes a matter of minutes to complete. On-screen prompts will guide you, and there is a useful factsheet to guide you through all the steps.

Tools and resources available on eToro

eToro offers a range of tools and resources, from social trading features to market analysis tools and investment insights. These tools empower you to make informed decisions and select the dividend stocks that are right for you.

Final thoughts

Dividend stocks can be a powerful tool for building wealth and generating passive income. For Australian investors, understanding the regional tax benefits, performing diligent research, and using a reliable platform such as eToro creates a solid foundation for success.

Learn more about dividend investing by joining the eToro Academy.

FAQ

How can I track upcoming dividends?

Announced dividends will be reported on the company’s own website and also in economic calendars, which track a wide range of upcoming news events, including dividends.

How long do you have to hold the stock to get the dividend?

You are eligible for a dividend payout if you invested at least two business days before record date and the transaction is completed by the end of one business day before the ex-date.

Do dividends go down when the stock price goes down?

This can only be answered on a case-by-case basis. Sometimes a stock price fall might be because the underlying health of the company has deteriorated, meaning that it may be less likely to make the profits required to justify paying dividends. Sometimes the stock price might fall as part of a market-wide correction, and the fundamental prospects and income stream of the company remain unaffected.