Two ASX Dividend Stocks That Could Lift Payouts Soon

When companies stack up stronger earnings, cleaner balance sheets, and conservative payout ratios, dividend upgrades often follow. Two names fit that bill right now: South32 (ASX: S32) and QBE Insurance (ASX: QBE). South32 has swung back to profit, moved into net cash, and kept its dividend at the bottom of policy—creating obvious headroom if earnings hold. QBE delivered double‑digit profit growth, tighter underwriting, and set its interim below the midpoint of its policy range—leaving room to lift the final. Here’s why both look positioned for a higher distribution in the coming periods.

South32: net cash, rising profits, policy headroom

South32’s FY25 reset was clean and credible. Revenue rose, operating profit returned to positive, and portfolio simplification (including the sale of Illawarra Metallurgical Coal) helped sharpen capital allocation. The board declared a fully franked final dividend of US 2.6 cents per share, equal to the minimum 40% of underlying earnings under its stated policy—deliberately conservative and signaling room to move if momentum continues. The final translates to roughly $0.040–0.055 per share depending on FX, with a record date in mid‑September and payment in mid‑October for ASX holders. The dividend framework remains simple: pay 40% of underlying earnings through the cycle, then layer capital returns when the balance sheet allows.

• Why a lift looks plausible: A return to net cash materially improves flexibility. With earnings improving and the payout set at the floor (40%), any further profit growth in H1 FY26 can translate directly into a higher interim ratio without straining the balance sheet.
• Capital returns live: Management extended the US$2.5 billion capital management program by 12 months, signaling continued buybacks alongside ordinary dividends—often a precursor to payout upgrades once balance‑sheet settings are comfortable.
• Portfolio quality: A higher‑return base‑metals tilt (including advancement at Hermosa Taylor zinc‑lead‑silver) improves through‑cycle earnings power, making a modest step‑up in payout more sustainable if commodity prices cooperate.

What to watch next

• Earnings cadence into FY26 as aluminium, manganese, and base‑metals prices evolve.
• Cost discipline and operating stability across key assets to protect margins.
• Project milestones at Hermosa (Taylor) and copper options that can lift medium‑term cash flow.

Risks

• Commodity volatility can quickly alter cash generation, testing payout flexibility.
• Execution risk on growth projects (schedule, cost, permitting) could defer cash‑flow uplift.

Bottom line on S32: With net cash restored, a simplified portfolio, and the dividend currently set at the minimum policy level, South32 has clear scope to nudge payouts higher if earnings hold up—especially with a live buyback reducing share count and supporting per‑share metrics.

QBE Insurance: profits up, interim below policy midpoint

QBE’s first half FY25 showed the hallmarks of a disciplined insurance cycle. Adjusted return on equity hit the high teens, the combined operating ratio improved to the low‑90s, and catastrophe experience was benign relative to prior years. Despite that, the board set the interim dividend at 31 cents per share—about a 30% payout of adjusted profit—below the company’s 40–60% full‑year payout policy range. The message is conservative but clear: the door is open to a larger final if momentum continues. The interim is payable in late September (partly franked), aligning with QBE’s usual cadence.

• Why a lift looks plausible: A 30% first‑half payout leaves ample room to land within the 40–60% full‑year policy range, assuming underwriting and investment income hold in 2H. If catastrophe losses remain manageable and pricing stays firm in priority lines, a higher final is the cleanest lever.
• Balance sheet strength: A prudently managed capital position (PCA multiple sitting inside the 1.6–1.8x target band) supports both growth and distributions, giving the board flexibility to lift the final while keeping buffers.
• Operating quality: Better underwriting discipline (COR improvement) and resilient investment income create a sturdier base for dividends, making a step‑up more sustainable than a one‑off.

What to watch next

• 2H catastrophe experience and large‑loss volatility versus allowances.
• Rate momentum and retention in North America, International, and Australia across property, specialty, and casualty.
• Capital management signals at the full‑year result (e.g., DRP settings, buyback commentary).

Risks

• Elevated cat events or claims inflation could compress underwriting margins.
• Market volatility can affect investment income and capital headroom, tempering payout uplift.

Bottom line on QBE: With a strong first half and an interim below policy midpoint, QBE has visible capacity to lift the final dividend and still end the year within its 40–60% payout framework—especially if underwriting discipline and benign cat trends persist.

The income investor’s takeaway

• Embedded headroom: South32 is paying at the policy floor with net cash and a live buyback; QBE set a below‑midpoint interim after a strong half. Both have obvious levers to raise distributions without stretching balance sheets.
• Quality of cash flow: South32’s through‑cycle base‑metals exposure plus buybacks support per‑share dividend growth; QBE’s underwriting improvements and capital buffers support a higher final while staying prudent.
• Risk‑aware positioning: Commodity beta (S32) and catastrophe risk (QBE) never vanish, but current settings are conservative—payouts can rise if operating conditions remain supportive.

Final word: For investors hunting near‑term dividend upgrades with sensible downside protection, South32 and QBE stand out. One has reset the balance sheet and kept payouts at the floor; the other is earning well above its interim distribution. If current trends continue, both have clear paths to lift cash returns in the next leg.

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