Three reasons businesses are paying higher dividends rather than investing

With low interest rates and record profits, why aren’t businesses in Australia investing for growth? Rather than investing in new projects, instead, they are giving cash back to shareholders in the form of record dividends and share buybacks. Why?

Well according to Professor of Finance Lee Smales, there are three key reasons for this:

1- Worries about the sustainability of commodity prices. Mining companies are reluctant to invest in new mines, in fear of price declines.

2- Commitment to a set dividend payout ratio. After a major investment cycle, many resource companies are sticking to promised dividend ratios. BHP, for example, is committed to pay shareholders at least 50% of profits.

3- Lack of investment opportunities. The decline in infrastructure spending at the state and federal level, for example, reduces the number of available investment opportunities with a good return on capital.

Political uncertainty might also be a reason for a hold back in investment. A Coalition government with little policy direction in Australia, increasing debt levels in China, and an unpredictable Trump administration in the US all contribute to uncertainty in the markets. In turn, this makes businesses more prone to increase dividends instead of investing.

As Smales puts it, “investors should enjoy the benefits of higher dividend payouts while they last”.

To read the full article, follow this link to

If you want to take advantage of record dividend payouts in the current market and earn up to 15% on dividends from safe, blue chip investments, contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email and learn about our market beating cash flow strategy.

COMING SOON – UGC Research available for subscriptions!

For a small yearly fee, learn how to take advantage of the current bull market and stay ahead of the crowd, with access to market news, updates, and 20-30 stock recommendations per year in the Australian and US markets!

Previously an exclusive of UGC clients, UGC Research gives you access to the proven strategies used by UGC Securities to identify high return, low risk investment opportunities.

The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation or tolerance for risk.

Recent stories

Is Your Cash Working As Hard As You?

Are you a business owner looking to supercharge your financial success and secure your future? If the answer is YES!…

Read more

How to Minimise Capital Gains Tax on Your Investment Property

Effective financial planning requires a deep understanding of the numerous tools and strategies at your disposal. Specifically, leveraging trusts and…

Read more

[NEW VIDEO]: The Power of Compounding & Leverage

We’re excited to launch the third instalment in our Wealth Accelerator Video Series – ‘The Power of Compounding & Leverage’.…

Read more

What is a Statement of Advice?

Navigating the world of financial advice can often seem daunting, especially when faced with various documents and terminologies. One such…

Read more

[NEW VIDEO]: Building a Winning Investment Portfolio

Welcome back to the Wealth Accelerator Video Series, where we’re committed to helping you achieve your financial goals and secure…

Read more