Top 10 Australian dividend stocks, ranked by income quality

Only Australian-registered operating companies on the ASX that actually pay are considered: dividends in at least three different calendar years within the last five years, and a trailing twelve-month yield between 1% and 12%. That leaves 173 companies out of 203 payers we can measure. Each one is scored on four things: the income lens (40%), which blends the yield and the length of the payment record against every share on the exchange; the risk lens (25%), which rewards a steady price; trading volume (20%); and trend (15%).

Income carries the most weight because this is a dividend list, but 60% of the score asks whether the share price has held up and the shares are easy to trade. That is deliberate: a high yield on a falling price is how a dividend cut often looks in advance, and the yield alone cannot tell a generous payer from a company the market has stopped believing.

Of the 173 eligible companies, 153 paid twice over the last twelve months, 15 paid quarterly and 5 paid once. The twice-a-year habit follows the Australian reporting calendar: most companies end their financial year on 30 June, report full-year results in August with a final dividend, and report half-year results in February with an interim dividend, each paid a few weeks after the announcement.

The yield on this page adds up every payment whose ex-dividend date fell in the last twelve months, which for these companies means the last interim plus the last final, divided by today's price. It therefore moves in two steps a year, one for each reporting season, and a company that cuts its interim but holds its final shows only half the change until the next season. Special dividends are included.

Many Australian dividends are franked, which means the company has already paid Australian company tax on the profit being distributed and a resident shareholder receives a credit for it. Investors in Australia often quote a "grossed-up" yield that adds the value of that credit, which can be well above the cash yield. The yield here is the cash dividend only: it ignores franking, because we do not store how much of each dividend is franked, and it therefore understates the after-credit income from fully franked payers and says nothing about unfranked ones.

Franking is also why the same cash yield can mean different things. Banks, retailers and other companies that pay full Australian tax tend to frank their dividends in full, while property trusts, infrastructure groups and companies with mostly foreign earnings often pay little or no franking, so a 5% yield from one group is not worth the same to a resident as a 5% yield from another. For non-residents the treatment of franked and unfranked dividends differs again; check it with the Australian Taxation Office or a tax adviser.

The typical eligible company yields 3.98%. 35 companies yield at least one and a half times that, and only 5 of them have a trend lens below 40, meaning a price weaker than most ASX shares. Most of the highest yields therefore come with a price that has held up, so a high yield on this market is not automatically a warning sign; the minority with a weak trend are the ones to read the latest results for.

The highest-yielding company inside the current top ten is Bluescope Steel Ltd (BSL) at 9.3%, with a trend lens of 87 and a twelve-month return of 65%. Its price is not weak, so on today's data a high yield here comes with a share that has held up; a yield that high is also one of the first things to check against the company's earnings, because it can be cyclical or include a special payment.

Among the 173 eligible companies the highest trailing yield belongs to Nine Entertainment Co. Holdings Ltd (NEC) at 11.3%. It ranks 90 on this list, because its trend lens is 39 and its risk lens 75, both out of 100. 2 Australian payers yield more than 12% and are left out altogether: at that level the cause is usually a one-off special payment or a share price that has already collapsed, and either way the figure is a poor guide to what you would receive next year.

Property trusts and infrastructure groups are ranked like other operating companies when they pass the filters. They pay "distributions" rather than dividends, usually twice a year or quarterly, and tend to yield more than the market because they pass most of their income through. Part of a distribution can be a return of capital or tax-deferred income rather than profit; the yield here counts every cash distribution and cannot separate the two, and the tax treatment of each part differs.

The typical eligible company yields 3.98%, and the typical company in the top ten 4.99%. The top ten yields more than the typical payer, but by less than a pure yield ranking would, which is the price of the steadiness rule: the list leans toward above-average yields on shares that have behaved, not the largest yields on offer. The Australian Top 10 by price-based X-Ray score ranks the same companies without regard to income.