Many Aussies are feeling the sting of inflation through the increased cost of living. So, it may not be a surprise that ASX dividend shares have come back into the spotlight as investors attempt to add to their income.
Unlike the US market, the Australian share market's dividend payers tend to be dominated by big mining companies and banks. Whereas, on Wall Street, it is the tech behemoths — such as Microsoft Corporation (NASDAQ: MSFT) and Apple Inc (NASDAQ: AAPL) — that rock the passive payout stage.
Though, with the tech sector still being the worst performing of all sectors on the ASX so far this year, what kind of outlook is there for its dividend prospects?
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How ASX tech shares stack up on dividends
This month Janus Henderson Group (ASX: JHG) released the 33rd edition of its Global Dividend Index report. In addition to revealing BHP Group Ltd (ASX: BHP) as the world's biggest dividend payer in 2021, the report provided sector-specific insights into the passive income component of shareholder returns.
Notably, global dividends reached a new record of US$1.47 trillion in 2021. This represented a staggering 14.7% increase on an underlying basis. While miners and banks constituted the lion's share of the increase in global dividends, other sectors helped chip in towards the gain.
For instance, Janus Henderson highlighted the technology sector as one that has been easy to overlook despite its consistent increase in contributions over the years. On a global level, the tech sector made up 11% of dividends with an increase of 8% year on year.
However, these figures are largely skewed towards the payments made by the likes of Microsoft and Apple. So, what does the field look like for ASX dividend shares in the tech sector?
Of the 15 companies in the information technology sector, 8 of them currently provide a dividend — or 53%. Additionally, ~63% of these companies increased their dividend on a dividend per share basis compared to a year ago.
Furthermore, on average an ASX share in the tech sector has a dividend yield of 1.05%. Currently, the highest dividend yield offered by one of these companies is metal detector and communications equipment manufacturer Codan Limited (ASX: CDA) with a yield of 4.06%.
Looking beyond the yield
While the dividend yield of ASX tech shares trails that of its mining and banking counterparts, there might be another component to the equation.
Co-portfolio manager of First Sentier's Equity Income Fund, Rudi Minbatiwala points out the growth potential within Australian technology players.
For instance, WiseTech Global Ltd (ASX: WTC) currently holds a minuscule 0.17% dividend yield. However, the logistics software company has managed to push revenues 19% higher year on year and increase its dividends per share by 120%.
As Minbatiwala says:
I know this may sound counterintuitive to some, but thinking about dividend income on a 'yield' basis can deliver poor income on a 'dollar' basis over the long term.
The comment may prompt investors to look beyond the low dividend yield from ASX tech shares on average. Instead, the potential for future and consistent earnings growth that could translate into greater dividends could be more of a focus.
