Dividends top $22 billion, but have they peaked?

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1 Economics March s top $22 billion, but have they peaked? Economic and Financial market perspectives Cash payouts: Since mid-february, ASX 200 companies have paid out around $3.3 billion in dividends to shareholders. But dividend payouts really start to ramp up from today. Overall, around $22 billion will be paid to shareholders over coming weeks. s still in vogue: The majority of companies reporting half-year earnings results (87 per cent) chose to pay a dividend and 91.5 per cent of these companies lifted or maintained dividends. Injection into the economy: s totalling $18 billion will be paid out by listed companies to their shareholders in the next four weeks. What does it all mean? s remain in vogue. But as has been apparent for the last few reporting periods, companies are seeking better balance between paying out dividends and investing in their businesses. The world has seemingly become a smaller place with companies across the globe competing with one another for the affection of consumers. Businesses need to invest in the brands, their businesses and their futures. That was certainly the response by Coca Cola Amatil which plans to spend $40 million in promoting brands Coke, Mount Franklin and Pump. The aim is to lift sales, profits (earnings per share) and ultimately support the share price and dividends. Of the ASX 200 companies reporting for the six months to December, around 87 per cent of firms elected to pay a dividend, up from the long-term average of 86 per cent, but down from the record level of 92 per cent in the 2015/16 full-year results. There is certainly plenty of cash available to firms. Of the 135 companies reporting half-year results, a record 94 per cent reported a profit. Aggregate cash holdings rose by 6 per cent over the year to $87 billion. Adding in the 32 companies reporting full-year earnings, cash stood at a record $115 billion. Over the period from February to May, over $22 billion will be paid to shareholders as dividends. A year ago dividend payouts were also around $22 billion, while in the full-year earnings season in August 2017, dividend payouts totalled around $26 billion. So shareholders continue to be well rewarded. Some shareholders will receive the dividends as cash and others will employ the proceeds through dividend reinvestment schemes. While the majority of the funds will be paid to domestic investors, other funds will go offshore to foreign investors. And while some of the dividends are paid to ordinary investors, other payments are paid to superannuation funds, thus with more limited short-term consequences for the economy. While dividends flow at this time every year, the dollars potentially could lift spending. However, April Craig James, Chief Economist Produced by Commonwealth Research based on information available at the time of publishing. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made as at the time of its compilation, but no warranty is made as to accuracy, reliability or completeness. To the extent permitted by law, neither Commonwealth Bank of Australia ABN nor any of its subsidiaries accept liability to any person for loss or damage arising from the use of this report. The report has been prepared without taking account of the objectives, financial situation or needs of any particular individual. For this reason, any individual should, before acting on the information in this report, consider the appropriateness of the information, having regard to the individual s objectives, financial situation and needs and, if necessary, seek appropriate professional advice. In the case of certain securities Commonwealth Bank of Australia is or may be the only market maker. This report is approved and distributed in Australia by Commonwealth Securities Limited ABN a wholly owned but not guaranteed subsidiary of Commonwealth Bank of Australia. This report is approved and distributed in the UK by Commonwealth Bank of Australia incorporated in Australia with limited liability. Registered in England No. BR250 and regulated in the UK by the Financial Conduct Authority (FCA). This report does not purport to be a complete statement or summary. For the purpose of the FCA rules, this report and related services are not intended for private customers and are not available to them. Commonwealth Bank of Australia and its subsidiaries have effected or may effect transactions for their own account in any investments or related investments referred to in this report.

2 tends to be a good month for the Australian sharemarket and part of the reason is that investors are keen to put their dollars to work in listed companies. The Profit Reporting Season Regular readers would be aware that each six months CommSec undertakes a detailed review of the profit reporting season the time when companies report half-year or annual results for the period to June or December. (A far smaller proportion of companies have a different reporting period, such as March or September). Read more at To recap, the recent earnings season for companies largely reporting half-year results to December 2017 can be described as solid, not spectacular. Effectively, companies seem to be laying the groundwork for the future. A record share of companies reported a profit. But aggregate statutory earnings were down 1.5 per cent on a year ago. A smaller percentage of companies issued a dividend, expenses outpaced sales and cash earnings were up only modestly on a year ago. Some of the themes of the season: Department stores remain under pressure but less so Specialty Retailers. TV and Radio Broadcasters have benefitted as advertisers drift away from social media. There were more reports of companies being able to lift margins. Agricultural and export-focussed consumer good companies benefitted from strong demand in Asia. Companies dependent on home construction and development have benefitted from strong activity levels in south-east Australia. Technology and Telecom companies have struggled. Transport and Infrastructure companies have out-performed. Of all companies reporting half-year earnings, 57 per cent reported a lift in profit and 43 per cent a decline (longterm average 61.4 per cent). Of those 94 per cent of companies reporting a profit, 56 per cent lifted profits and 44 per cent reported a decline. Of all the half-year reporting companies, 87 per cent issued a dividend and 13 per cent didn t. Of those reporting a dividend, 74.5 per cent lifted the dividend, 8.5 per cent cut and 17 per cent left dividends unchanged. Of all companies reporting half-year earnings, 58 per cent lifted cash holdings over the year and 42 per cent cut cash levels. Cash holdings of both full-year and half-year reporting companies stood at $115 billion at December 31. The Timeline IRESS provides data on the dividends declared by companies, the number of shares on issue and the pay date of the dividends. So it is possible to derive a dividend timeline. The ASX 200 companies were assessed. As always there are complications to the analysis such as where the shareholders are based, whether dividend reinvestment plans operate, special dividend payments and currency translation effects for foreign investors. But the aim is to get a broad idea of the timing and magnitude of dividend payouts. CommSec estimates that around $22 billion will be paid to shareholders from mid-february to early May The key period for dividend payments is the three-week period beginning March 26 and ending April 13. Over that three-week period, $16.6 billion will be paid out as dividends by listed companies: in the week ending March 30, March

3 dividends totalling $10 billion will be paid; in the week ending April 6, $4.1 billion will be paid out as dividends; in the week ending April 13 dividend payments totalling $2.5 billion will be made. The importance of dividends If you indexed the All Ordinaries index and the All Ordinaries Accumulation index at January 2004 it would show share prices (All Ords) up 84 per cent while total returns have risen by around 339 per cent. The differential (dividend growth) has especially widened from the low point for shares after the GFC in February So dividends have taken on greater importance. There are a few reasons for this. Investors have been more cautious about buying shares, despite the fact that Australian companies have been making money and strengthening balance sheets. So share prices have not fully captured the stronger fundamentals. The economy has also continued to mature and the potential growth rate has eased from around 3.5 per cent to 2.75 per cent. Many of Australia s biggest companies operate in mature industries. So while companies continue to generate good returns, growth options are more limited. Add in the fact that inflation has also slowed from around 2.5 per cent to just below 2 per cent. In recent years Australian companies have also had to compete with heady property markets to secure the affection of investors. With share prices seemingly constrained by a range of influences, that puts more onus on companies to offer attractive dividends or to support share prices with buybacks. Until recently there has been some reluctance by companies to plough back cash into the business. And expansion, renewal, replacement or efficiency measures have boosted the funds that can be made available as dividends. What are the implications for investors? Investors have the usual choice over the next few weeks. Those investors who still elect to receive dividend payments direct to their accounts can choose to spend the extra proceeds, save the proceeds (leave it in the bank) or use the funds in combination with other savings and reinvest into shares or other investments. For companies, retailers and financial firms, the dividends flowing through to shareholders clearly represent opportunities. The Reserve Bank will also monitor the trends in the next few weeks: stronger confidence and an inflow of funds represent a potential spending boost. Of the major bourses across the globe, Australia is the largest payer of dividends. In part this reflects the maturity of Australia s industry sectors. It also reflects the stability of the companies that dominate the ASX20 and ASX50 indexes. And it also reflects the on-going growth of the Australian economy and corporate profitability. Over the past couple of years many companies took the safe option of paying out dividends and buying back shares in other words, keeping shareholders happy. But many companies are now opting for greater balance. Adequate cash must be maintained to pay out dividends. But cash levels as well as modest borrowings are important for reinvestment in the business and applied to new opportunities entering new markets or engaging in mergers and acquisitions. Aussie companies have been successful in recent years in trimming costs and improving efficiencies. But the path to higher profits and retained earnings is also growth of revenues. And that objective is more difficult in a globalized world, affected by disruption and technology-driven innovation. Shareholders increasingly realize that it is important to select companies with good potential for solid, sustainable growth in total returns share price plus dividends. And that means paying attention to all aspects of the business. Craig James, Chief Economist, CommSec March

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5 Code Com pany VVR Viva Energy REIT CYB Cybg PLC MFG Magellan Fin Grp Ltd WFD Wes tfield Corp SCG Scentre Grp WHC Whitehaven Coal JHG Janus Henderson GUD G.U. D. Holdings GWA GWA Group Ltd ANN Ansell Limited MIN Mineral Resources. DMP Domino Pizza Enterpr JBH JB Hi-Fi Limited BLD Boral Limited DHG Domain Holdings Aus TAH TABCORP Holdings Ltd IFL IOOF Holdings Ltd IPH IPH Limited APA APA Group FXJ Fairfax Media Ltd GTY Gateway Lifes tyle AWC Alumina Limited RMD ResMed Inc. SKI Spark Infrastructure NVT Navitas Limited REA REA Group SKC Skycity Ent Grp Ltd OML Ooh!Media Limited CCP Credit Corp Group GMA Genworth Mortgage CPU Computershare Ltd PTM Platinum Ass et SFR Sandfire Resources TME Trade Me Group RRL Regis Resources AHY Asaleo Care Limited LLC Lendlease Group WPL Woodside Petroleum SGR The Star Ent Grp BKL Blac kmores Limited SDF Steadfast Group Ltd HSO Healthscope Limited GXL Greencross Limited IRE IRESS Limited Source: iress, CommSec Ex-dividend date 31-Jan Jan Feb Feb Feb Feb Feb Dec Dec Feb Feb-18 Pay Date 15-Feb Feb Mar Mar Mar Mar-18 Amount Cents/share Shares Estim ated on Issue $m March

6 Code Com pany EHE Estia Health Ltd GEM G8 Education Limited AGL AGL Energy Limited. WOR WorleyParsons Ltd AZJ Auriz on Holdings Ltd PPT Perpetual Limited OZL OZ Minerals PRY Primary Health Care CGF Challenger Limited BHP BHP Billiton Limited CBA Commonwealth Bank. MPL Medibank Private Ltd ASX ASX Limited BGA Bega Cheese Ltd AMC Amc or Limited ALU Altium Limited IGO Independence Group SBM St Barbara Limited SGM Sims Metal Mgmt Ltd AMP AMP Limited BRG Breville Group Ltd EVN Evolution Mining Ltd BPT Beac h Energy Limited MMS McMillan Shakespeare IAG Insurance Australia BEN Bendigo and Adelaide TGR Tass al Group Limited RHC Ramsay Health Care OSH Oil Search Ltd MND Monadelphous Group TLS Telstra Corporation. RWC Reliance Worldwide TLS Telstra Corporation. BSL BlueScope Steel Ltd NHF NIB Holdings Limited SUL Super Ret Rep Ltd DOW Downer EDI Limited CWN Crown Resorts Ltd AHG Automotive Holdings. MYO MYOB Group Ltd WES Wes farmers Limited S32 South32 Limited PGH Pact Group Hldgs Ltd FMG Fortescue Metals Grp Source: iress, CommSec Ex-dividend date 14-Feb Feb Mar-18 Pay Date 03-Apr Apr Apr Apr Apr Apr-18 Amount Cents/share Shares Estim ated on Issue $m March

7 Code Com pany S32 South32 Limited SUN Suncorp Group Ltd CGC COSTA GROUP HOLDIN QUB Qube Holdings Ltd CTX Caltex Australia IVC InvoCare Limited SPK Spark New Zealand TWE Treas ury Wine Estate CWY Cleanaway W aste Ltd SPK Spark New Zealand WOW Woolworths Group Ltd WTC Wisetech Global Ltd SHL Sonic Healthc are CCL Coca-Cola Amatil CTD Corp Travel Limited SXL Sthn Cross Media BXB Brambles Limited COH Cochlear Limited QAN Qantas Airways RIO Rio Tinto Limited CSL CSL Limited SEK Seek Limited FLT Flight Centre Travel ABC Adelaide Brighton ABC Adelaide Brighton NST Northern Star ORA Orora Limited INM Iron Mountain Incorp CNU Chorus Limited NEC Nine Entertainment NWS News Corp.. WEB Webjet Limited CAR Cars ales.com Ltd. SVW Seven Group Holdings APO Apn Outdoor Grp QBE QBE Insuranc e Group ARB ARB Corporation. ILU Iluka Resourc es HT1 Ht&E Limited BAP Bapc or Limited LNK Link Admin Hldg HVN Harvey Norman NCM Newc rest Mining SDA Speedcast Int Ltd CIM Cimic Group Ltd Source: iress, CommSec Ex-dividend date 21-Feb Mar Mar Mar Jun-18 Pay Date 10-Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr Apr May May May Jul-18 Amount Cents/share Shares Estim ated on Issue $m March