Share dividend bonanza coming from the top end of town

Companies have flexed their financial muscle with higher-than-expected dividends totalling $34bn for shareholders | FULL LIST: See what the biggest players are paying

The stock exchange’s big guns are firing up their half-year dividend handouts as corporate Australia defies expectations of flat payments to shareholders.

Eighty per cent of the nation’s biggest listed companies have lifted their dividends, several by significant amounts, with almost $34bn flowing to shareholders from the recent December half reporting season.

CommSec said despite weaker company profits and lower cash levels, total dividends had only dropped 2 per cent.

Among the companies issuing a dividend, 52 per cent lifted theirs, 19 per cent held steady and 29 per cent cut, it said.

The biggest bonanza for shareholders looms in the last week of March when $18.8bn will be paid out – including giants BHP, CBA and Telstra on the same day.

CommSec chief economist Craig James said there was “some defiance by businesses to continue to reward shareholders despite difficult times”.

“Aggregate profits were down about 35 per cent, cash levels are down around 25 per cent, but the dividends are only down 2-3 per cent,” he said.

Mr James said to pay strong dividends, “you have to have a degree of optimism about the future”.

RBC Capital Markets head of Australian equities Karen Jorritsma said dividends were better than expected and a good signal of confidence in boardrooms.

“It would be fair to say that balance sheets are in pretty good shape and optimism from the C-suite is a little better than what the market was anticipating,” she said.

Ms Jorritsma said outlook from consumer-focused companies had been surprisingly strong.

“People had anticipated the consumer would be in more pain than we have seen,” she said. “That’s the key takeaway for me from the reporting season.”

Of Australia’s five biggest banks, only CBA has December and June balance dates, and the other four – ANZ, Macquarie, NAB and Westpac – will announce half-year results and dividends in early May.

Ms Jorritsma said she expected those bank results to reflect that the state of the Australian economy was OK.

“We have seen no evidence of the mortgage cliff … we have had the most advertised recession in history that never arrived,” she said.

Excess inflation was disappearing steadily in Australia and the US, and investors were witnessing “an orderly dismount from a decade bender of QE”, Ms Jorritsma said.

AMP head of investment strategy Shane Oliver the overall market’s dividend performance had been more modest than the top end.

Dr Oliver said there was a risk that further slowdown could cause more dividend cuts, but once interest rates dropped and conditions improved again “dividends will start to pick up”.

“The big unknown is the big resource companies that have had a profit bonanza over the last couple of years,” he said. “If commodity prices come off, they might have to cut.”

Iron ore miner Fortescue’s 44 per cent dividend surge confused some investors because other resource giants cut dividends, Dr Oliver said, but it may have been a case of Fortescue playing catch-up to companies such as BHP.

As a whole, the miners had been resilient, he said.

“There was a fear that those big miners would cut them a lot more – they haven’t done that, and the payout ratios were really good.”

Hasan Tevfik from MST Marquee expects more dividend upside. Picture: Julian Andrews).

MST Marquee senior research analyst Hasan Tevfik said dividends had outperformed relative to earnings.

“About 30 per cent of dividends in Australia are announced in US dollars, and if you include the currency effect because the Australian dollar went down, dividends were upgraded by about 2 per cent,” he said.

Mr Tevfik said profit growth would be a key driver of the outlook for dividends.

“The December half was the low point in Aussie profits, and we are expecting more upside in part because companies are getting on top of their cost issues,” he said.

“Balance sheets are quite strong.”

Baker Young managed portfolio analyst Toby Grimm said “the reporting season was better than feared from a margins perspective”.

Mr Grimm said top-line revenue had been underwhelming but companies had shown an ability to control their operating spending and pass on costs to customers.

“Payout ratios are still generally high … you could ask why they’re choosing to distribute profits rather than invest in future growth,” he said.

“It’s also the result of about 12 months of companies diverting cashflow to pay down debt.”

Mr Grimm said he expected to see increasing pressure on companies to invest in their own business, which could subdue second-half dividend increases.

Originally published as Share dividend bonanza coming from the top end of town