by Mint Asset Management
By: David Fyfe, Portfolio Manager for the Mint NZ SRI Equity Fund.
Falling wholesale rates, a softer OCR path, and inflation easing but still near the top of the Reserve Bank’s band are reshaping where investors look for steady returns.
For much of 2024, a 6% term deposit was the easy choice. But with the OCR now at 2.5% and markets still expecting further easing through 2026, reinvestment rates are sliding. The New Zealand share market, by contrast, still offers a mix of companies generating gross yields in the 5-7% range, many with partial inflation linkage and more stability than their global peers.
A market built for yield
New Zealand’s market has always leaned towards income. Utilities, infrastructure and property vehicles together make up more than a third of the NZX 50, and payout ratios remain among the highest globally.
While the global narrative has revolved around growth and technology, local investors have been quietly collecting cash. The market’s 12-month forward gross yield is roughly 5%, comfortably above the 10-year government bond yield of about 4.2%, and the equity-bond yield spread is now at a multi-year high.
That premium isn’t new. Academic work on long-term NZ equity returns finds that domestic equities have historically outperformed bonds during moderate and high-inflation regimes, suggesting the market’s income bias has partly been a natural hedge against the loss of purchasing power.¹ New Zealand’s tendency towards high dividend payout ratios means investors have often been paid more in income than capital gains - less glamour, but more reliability.
Listed property: income remains the attraction, but capital raising returns
After several years of valuation pressure, the listed property sector has enjoyed a quiet recovery. Falling swap rates and a stabilising inflation outlook have lifted asset values, while most landlords have maintained or modestly grown their distributions.
Average gross yields are now around 7%, or roughly 280 basis points above the 10-year government bond, still comfortably ahead of long-term norms. Sector gearing has stabilised in the mid-30% range, and many portfolios retain embedded inflation protection through CPI-linked or fixed annual rent reviews.
However, dividend growth remains subdued. The sector’s story is one of income resilience rather than expansion. Industrial and logistics assets continue to perform strongly, offsetting slower rent recovery in office and retail. With payout ratios averaging in the mid-90s as a share of AFFO , the room for material distribution uplift remains limited.
As valuations have recovered and several names now trade close to NTA , balance-sheet flexibility is improving, and the capital window has begun to reopen. The recent round of equity raisings signals a more confident funding environment and the likelihood of selective capital recycling as companies’ position for the next development phase.
In essence, listed property remains a yield vehicle providing steady, inflation-linked income—but for now the emphasis is on sustaining distributions rather than accelerating them.
Utilities: income and growth, not just defence
The electricity sector remains the cornerstone of the NZX’s income base—but unlike the property trusts, it also carries a growth story.
Contact, Mercury, Meridian and Genesis are all guiding to stable or rising dividends through FY26–27, supported by moderate demand growth, expanding renewable generation, and a more predictable regulatory backdrop. Sector gross yields range from around 5% for the larger operators to just under 8% for Genesis, and valuations remain below long-term averages on cash-flow multiples.
Dividend growth has been a defining feature. The major gentailers have consistently lifted payouts over the past decade as renewable capacity and earnings visibility improved. Balance sheets are conservative (typically below 3× net-debt/EBITDA), and long-duration assets mean funding costs decline faster than revenues when rates fall.
There’s a policy contrast here too. Utilities continue to invest and expand while distributing meaningful dividends, whereas the REIT sector’s ability to grow distributions is more constrained by gearing and rent growth. In a slowing economy, that combination of yield plus genuine growth gives the gentailers an edge as the anchor of New Zealand’s income market.
Telco and core infrastructure: steady income, strategic reset
Telco and network-infrastructure stocks - Spark, Chorus, Vector and Channel Infrastructure—continue to offer mid-single-digit yields backed by regulated or contracted revenues. They remain the market’s “bond proxies”: stable but rate-sensitive.
The sector has, however, been through a period of self-correction. Spark’s recent capital-management reset, and revised dividend framework acknowledge that years of inconsistent capital discipline had eroded investor confidence. The company is now refocusing on balance-sheet stability, efficiency, and sustainable dividend coverage.
That adjustment captures the broader reality for NZ telcos: yield visibility is solid, but growth depends on execution. The mobile market remains competitive, with cost pressures from network expansion and new entrants, so income remains the attraction rather than the growth story.
With the OCR at 2.5%, the relative appeal of these defensive yield names has improved, even if their valuations remain sensitive to further rate movements.
Real yields in a 3% inflation world
With annual CPI running near 3%, still at the upper edge of the RBNZ’s 1–3% target range, nominal yields need context. On a simple basis, real yield equals cash yield minus inflation. A diversified portfolio generating 6% gross today implies a real yield of roughly 3%, before tax and imputation effects.
Research into NZ equity returns shows that during periods of moderate inflation (between 2 and 4%), real returns from equities have remained positive, particularly in income-weighted markets. In part that’s because dividends tend to adjust gradually to prices—through CPI-linked leases, regulated pricing, or cost-plus revenue models - whereas fixed-income yields adjust instantly downward as central banks ease.
That dynamic may now re-emerge: as deposit and bond yields fall faster than company payouts, the real income gap in favour of equities widens, even before factoring in capital gains.
A pragmatic view
The next phase for income investors is likely to be less about chasing nominal yield and more about sustaining real yield - income that holds its purchasing power as inflation drifts lower.
The NZX is structurally well-placed for that: a mix of high-payout sectors, conservative balance sheets, and a degree of inflation linkage that smooths returns through the cycle. Property provides income stability; utilities combine income with genuine growth; and telco and infrastructure remain the reliable core.
It’s not a market that trades on hype, but in a world of falling rates and still-sticky inflation, reliability is starting to look fashionable again.
¹ “New Zealand long-term equity returns and their determinants,” Journal of International Financial Markets, Institutions and Money (2024), ScienceDirect link.
Disclaimer: David Fyfe is a Portfolio Manager at Mint Asset Management Limited. The above article is intended to provide information and does not purport to give investment advice. Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the Product Disclosure Statement
Mint Asset Management is an independent investment management business based in Auckland, New Zealand. Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement at mintasset.co.nz
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