New analysis has shown a “worrying trend” in the 2023-24 financial year as Australian companies take a more conservative approach to shareholder payouts, Martin Currie has highlighted.

According to the asset manager, the market’s average payout ratio has fallen from 62 percent before COVID-19 to 53 percent today.

Martin Currie’s chief investment officer, Reece Birtles, highlighted the wider implications of this change, highlighting not only the reduction in income returned to shareholders, but also the increased focus on reinvesting in growth opportunities.

"One of the trends that's been seen since COVID-19 is that companies have become much more conservative in terms of the payout ratio and the debt ratio that they're willing to run," Birtles said in a post-reporting season webinar.

“There is real conservatism or accumulation of retained earnings that are not necessarily reinvested in large areas. It's a shareholder return issue."

A notable example includes coal producer and developer Yancoal, which told shareholders in August it would not pay an interim dividend.

According to Birtles, companies most often cut or lower their payout ratios due to earnings stress. "We've seen this action from Mineral Resources, Dexus and Insignia Financial," he said.

Woodside Energy Group is of particular concern to Martin Currie as its strategic investments in a number of new projects in North America have put more stress on its free cash flow and ability to fund strong dividends going forward.

Outside of these companies, Birtles said the resources sector as a whole had been "remarkable" during the financial year.

“In the last 12 months [they] brought good dividends. But now the outlook is much more difficult. Most of the future dividend downgrades are in the resources space,” Birtles said.

He added that the banks are also a cause for concern, even though they have delivered strong earnings and reasonable dividends.

While Commonwealth Bank declared a record dividend of $2.50 per share, fully franked, to take dividends to $4.65 per share in the fiscal year, Birtles said it did not fully reflect the bank's results.

“The biggest thing that has changed is share prices. So Commonwealth Bank shares have risen so much in the last 12 months, with almost flat dividends,” he said.

Ultimately, Birtles believes there is a pervasive lack of pressure on boards and management to redirect shareholder payouts.

“I think companies have become very comfortable being conservative and investing in projects that aren't necessarily [creating] the highest returns, they improve the quality of business. So there is, I would say, a lack of pressure on them lately,” he said.

He said it could also be a product of a momentum-driven market, where companies choose to hold back capital spending and make investments that are not conducive to generating current profits.

"Once the momentum bubble bursts, we really expect to see a return to dividends and more focus on improving shareholder value," he said.

"For investors, dividends will continue to play an important role as they provide a more reliable return than capital gains and can act as a 'safety net' during times of increased volatility."