ASX dividend yields have dropped to multi-year lows as share prices rose faster than payouts. That shift has made term deposits look competitive again. In this article, we break down why yields are shrinking, where better income still exists, and six ASX stocks worth watching for more reliable cash flow.
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Something unusual is happening in the Australian share market. For the first time in years, a basic term deposit paying 4.10% to 4.20% now offers a competitive alternative to the cash yield of most blue-chip ASX stocks.
The S&P/ASX 200 dividend yield has slipped to around 3.3%, well below its 10-year average of 4.3%. For income investors who built portfolios around reliable bank and mining dividends, this is a wake-up call. But here's the good news: attractive yields haven't disappeared. They've just moved to different corners of the market.
The decline isn't about companies becoming stingy. It's about maths.
When share prices climb faster than dividend payments, yields compress. That's exactly what happened as the ASX rallied through 2024 and into 2025. A company paying the same dividend looks less generous when its share price has jumped 30%.
Commonwealth Bank’s cash yield has compressed to just 2.7% (or ~3.8% grossed-up), not because it slashed dividends, but because its share price soared while payouts grew modestly. The other majors face similar dynamics, plus margin pressure from mortgage competition.
Meanwhile, the miners have genuinely pulled back. Rio Tinto announced its smallest dividend in seven years after earnings dropped on weaker commodity prices. The bumper payouts of 2021-2022 were tied to exceptional iron ore prices that have since normalised.
There's a concentration problem, too. Just 10 companies, dominated by the big banks and BHP, now provide over 50% of total ASX 200 dividend income. When one or two of these giants reduce payouts, the entire market feels it.
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Not every sector has suffered equally. Energy, utilities, and infrastructure are picking up the slack, often with yields double what banks now offer.
Woodside Energy (ASX: WDS) saw trailing yields touch 13% recently; however, as LNG pricing normalises, the forward yield is now settled closer to 7.5% to 8%. That grosses up to roughly 11% for eligible investors. The company maintains an 80% payout ratio with major LNG projects supporting future earnings. The trade-off? Energy stocks thrive or falter based on commodity prices.
APA Group (ASX: APA) offers boring, predictable cash flows from owning Australia's largest gas pipeline network. The 6.2% yield comes from infrastructure earning toll-like revenue regardless of gas prices. Most contracts are inflation-linked, which provides for natural growth. Distributions are unfranked, but the stability appeals to volatility-weary investors.
Atlas Arteria (ASX: ALX) operates toll roads in France, Germany, and the United States. At 8.2%, it offers one of the highest yields among large-cap stocks. Traffic volumes drive reliable revenue, and distributions have grown steadily for a decade. The catch: no franking credits, and overseas assets mean currency risk.
ANZ Group (ASX: ANZ) represents the best value among the big four banks. The 4.7% yield beats CBA comfortably; ANZ’s 2025 dividends were partially franked at 70% (with the remainder unfranked). Despite the lower franking level compared to CBA, its higher base yield still offers a superior grossed-up return for most investors. It remains a superior income play, and new management is driving cost improvements. Bank earnings remain tied to employment; if joblessness spikes, expect pressure on payouts.
Telstra (ASX: TLS) won't excite yield chasers, but its 3.9% fully franked dividend offers something rare: predictability. The telco has stabilised payouts at 19 cents annually, and its dominant market position provides defensive ballast when markets turn rough.
Steadfast Group (ASX: SDF) takes a growth-and-income approach. The 3% yield looks modest compared to the miners, but Australia's largest insurance broker has lifted dividends every year since listing. For patient investors, buying dividend growers early often delivers better long-term income than chasing today's highest yields.
Franking credits can turn an ordinary yield into an exceptional one, yet many investors underestimate their impact.
Here's the maths: a 7% fully franked dividend is worth around 10% grossed up for investors on lower tax brackets. For retirees and SMSF members in pension phase paying zero tax, those credits translate directly into cash refunds from the ATO. That's real money back in your pocket.
When comparing investment options, always do the franking adjustment. A 5% fully franked yield often beats a 6% unfranked one after tax. Infrastructure and property trusts typically pay unfranked distributions, while banks, miners, and most industrials offer full or partial franking.
There's also a potential bonus coming. Several major companies- including BHP, Rio Tinto, and Wesfarmers- are sitting on large franking credit balances built up over the years. Recent regulatory changes have made share buybacks less attractive for distributing these credits. The alternative? Special dividends.
The days of earning 5%+ from a handful of banks and miners are over, at least for now. The market has changed, and your approach needs to change with it.
Prioritise sustainability over headline yield. A sky-high yield often signals trouble ahead. Companies don't pay 10% because they're generous, they pay 10% because the market expects a cut. One dividend reduction can wipe out years of income gains. Look for companies with strong cash flow coverage, manageable debt, and a track record of maintaining payouts through tough times.
Spread your income across sectors. Utilities, infrastructure, energy, and financials each face different economic pressures. When interest rates rise, infrastructure stocks feel pain. When commodity prices fall, miners suffer. Diversification means your income stream keeps flowing even when one sector stumbles.
Always factor in franking. Before comparing yields, convert everything to an after-tax basis. Your accountant or a simple online calculator can help. The difference often changes which investment makes sense for your situation.
Accept the new reality. Market yields around 3.5% aren't a temporary blip, they reflect how companies now think about capital. More boards prefer buybacks, growth investment, and balance sheet strength over big dividend payouts. Chasing yesterday's yields means stretching into riskier territory that may not reward you.
The opportunity for income investors hasn't vanished. It just requires more work to find and the willingness to look beyond the familiar names that served you well in the past.
ASR's Income Report provides in-depth research on dividend sustainability, franking strategies, and income opportunities- built for investors who rely on portfolios for cash flow. Start with ASR's free Top-3 Stocks & Market Outlook Report for our latest analysis and investment ideas.
This article is for informational purposes only and does not constitute financial advice.
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