Shareholders to pocket $87bn in dividends, outlook darkens on Russian aggression

Shareholders will pocket $87bn in dividends in the coming weeks but the outlook for the year ahead is mired in geopolitical chaos, Morningstar warns.

Shareholders will pocket $87bn in dividends in the coming weeks. Picture: AAP / Joel Carrett

Shareholders will pocket $87bn in dividends in the coming weeks following a solid earnings season in Australia but the outlook for the year ahead is mired in geopolitical chaos, with the prospect of stagflation now “very real”, according to research house Morningstar.

Despite supply-chain disruptions, labour constraints and cost inflation through 2021, the February reporting season showed cost-control measures and price increases generally limited the damage to margins, Morningstar head of equity research Peter Warnes said.

BHP and Rio Tinto were the standouts on the dividend front, accounting for $48bn, or 55 per cent, of all dividends handed to shareholders, while recovering banks and “buoyant oil companies” also joined the party in the December half.

Initial market reactions for earnings results swung from Avita Medical’s 25.7 per cent share price surge and Magellan Financial’s 18.5 per cent jump to Tyro Payments’ 25.9 plunge.

But widespread uncertainty meant earnings estimates for the year ahead had been upgraded in the low single digits, with higher expectations in resources and financial sectors offset by smaller downgrades in industrials, Mr Warnes cautioned.

“Upgrades were most common in the energy sector with oil, gas and LNG prices escalating while both thermal and coking coal companies were also upgraded as supply issues pushed prices to record levels despite widespread ESG concerns,’’ he said.

“The lack of investment and natural reserve depletion continues to constrain oil supply, which is only exacerbated by the recent Russian invasion of Ukraine.”

The impact of the war will reverberate across the global economy for some time, he warned.

“Supply chain issues will lengthen considerably and could disrupt the global economy for years. Europe is a critical cog in the global economy and recession is very possible. It is unlikely business investment will increase meaningfully given the level of uncertainty,” Mr Warnes said.

“A debt-laden government is also likely to keep a cap on expenditure, reducing the influence of public demand on GDP growth. Material shortages will continue to restrict residential construction activity.”

While GDP growth of 4 per cent plus was widely forecast, it could disappoint, he warned.

“The possibility of stagflation, rising prices and falling growth is very real.”