Dividend bonanza: Payouts hit $28.5 billion

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1 bonanza: Payouts hit $28.5 billion Economic and Financial market perspectives Economics September Cash payouts: Since late August, ASX 200 companies have paid out around $6 billion in dividends to shareholders. But dividend payouts really start to ramp up from next week. Overall, around $28.5 billion will be paid to shareholders with another $22.5 billion distributed in coming weeks. s still very much in vogue: The majority of companies reporting full-year earnings results (90 per cent) chose to pay a dividend and 90 per cent of these companies lifted or maintained dividends. Injection into the economy: s totalling $21.4 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. In fact, in contrast to the last reporting period, more companies have chosen to pay out a dividend. But the proportion of companies seeking to pay out dividends is still down from the highs in the 2015 and 2016 financial years. In other words, companies are seeking to strike a balance between rewarding shareholders and ploughing money back into their operations. Of the ASX 200 companies reporting for the year to June, around 90 per cent of firms elected to pay a dividend, up from the long-term average of 86 per cent, but down from the record levels of per cent recorded in the 2015 and 2016 full-year results. There is certainly plenty of cash available to firms. Of the 139 companies reporting full-year results, almost 93 per cent reported a profit, just down from the 94.4 per cent recording a profit in the 2017 half-year results. Aggregate cash holdings rose by 6 per cent over the year to $96 billion. Adding in the 31 companies reporting full-year earnings, cash stood at a record $124.7 billion. Over the period from July to October, around $28.5 billion will be paid to shareholders as dividends. A year ago dividend payouts were around $26 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. Further, September and October tend to be more challenging months for the Australian sharemarket and investors may be more inclined to spend rather than invest. 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 Economic Insights: bonanza: Payouts hit $28.5 billion 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 was impressive. Six months ago, when describing the first-half 2018 reporting season we said results had been solid, not spectacular. This reporting season for companies largely reporting full-year results to June 2018 the macro picture has been almost been a carbon copy. But then again business surveys have been positive for most of the period the NAB survey was at record highs in October and has since held near historic highs. Recent softening reflects uncertainty about the impact of tariff wars being played out across the global economy. Almost 93 per cent of companies reported a profit, just below the 94 per cent record high in the prior season in February. Aggregate statutory earnings have lifted 8.4 per cent on a year ago. The percentage of companies issuing a dividend is near record highs; expenses have matched sales; and cash levels are at record highs and up 8.5 per cent on a year ago for all ASX 200, half or full-year reporting companies. Some of the themes of the season: The share prices of companies that surprised either positively or negatively with earnings results, moved sharply on the day of earnings release. The earlier confessional period had been generally quiet, thus the lift in volatility when earnings results beat or missed expectations (eg WiseTech, Pact Group, Speedcast International). A number of the heavyweight companies reported declines in statutory profits but underlying results remain favourable. Costs or expenses continue to lift, matching growth of sales as had been the case in the six months to June. Resource companies have especially noted cost pressures. Companies exposed to home construction and development have reported early signs of a slowdown. Those effects will be more prominent in the next year. Of all companies reporting full-year earnings, almost 93 per cent reported a profit. Sixty-two per cent reported a lift in profit and 38 per cent a decline (long-term average 61.5 per cent). Of those reporting a profit, 60 per cent lifted profits and 40 per cent reported a decline. Of all FY reporting companies, 90 per cent issued a dividend and 10 per cent didn t. Of those reporting a dividend, 70 per cent lifted the dividend, 10 per cent cut and 20 per cent left dividends unchanged. Of all companies reporting full-year earnings, 60 per cent lifted cash holdings over the year and 40 per cent cut cash levels. Cash holdings of both full-year and half-year reporting companies stood at $124.7 billion at June 30, (full-year companies, up 6.2 per cent on a year ago to $96.3 billion). 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 September

3 Economic Insights: bonanza: Payouts hit $28.5 billion the aim is to get a broad idea of the timing and magnitude of dividend payouts. CommSec estimates that around $28.5 billion will be paid to shareholders by ASX 200 companies from July to late October The key period for dividend payments is the four-week period beginning September 17 and ending October 12. Over that four-week period, $21.4 billion will be paid out as dividends by listed companies: in the week ending September 21, dividends totalling $2.4 billion will be paid; in the week ending September 28, $12.5 billion will be paid out as dividends; in the week ending October 5 dividend payments totalling $2.4 billion will be made; and in the week ending October 12 distributions total $3.1 billion. 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 90 per cent while total returns have risen by around 255 per cent. The differential (dividend growth) has especially widened from the low point for shares after the global financial crisis 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 around 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 bank 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: if confidence lifts, an inflow of funds represents 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 together with confidence on future profitability. 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. Over the past year, costs or expenses have lifted. Aussie companies have done well to lift revenues, profits and dividends in the current environment. And with competition increasingly becoming global, Aussie TOP DIVIDEND YIELDS All Ordinaries Security Company RFG Retail Food Group TGP 360 Capital Grp ZIM Zimplats Holding Ltd MOC Mortgage Choice Ltd NZM Nzme Limited PPG Pro-Pac Packaging EZL Euroz Limited VLW Villa World Ltd. BFG Bell Financial Group GRR Grange Resources. AWC Alumina Limited HVN Harvey Norman ENN Elanor Investors Grp VTG Vita Group Ltd DWS DWS Ltd GNG Gr Engineering Ltd ERF Elanoretl Property GMA Genworth Mortgage AHY Asaleo Care Limited REX Regional Express WPP WPP Aunz Ltd AMP AMP Limited CMW Cromwell Prop AVN Aventus Retail Fund CMA Centuria Metro REIT DivYld% September

4 Economic Insights: bonanza: Payouts hit $28.5 billion companies need to get the balance right in focusing on lifting revenues and restraining costs. 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 September

5 Economic Insights: bonanza: Payouts hit $28.5 billion Code Company CIM Cimic Group Ltd MTS Metcash Limited VVR Viva Energy REIT JHG Janus Henderson IOF Investa Office Fund MFG Magellan Fin Grp Ltd GMG Goodman Group NSR National Storage VCX Vicinity Centres DXS Dexus SCP SCA Property Group GMA Genworth Mortgage GMA Genworth Mortgage CHC Charter Hall Group AAD Ardent Leisure Group MGR Mirvac Group ABP Abacus Property Grp. GPT GPT Group GOZ Growthpoint Property SCG Scentre Grp CQR Charter Hall Retail GUD G.U.D. Holdings SGP Stockland DHG Domain Holdings Aus IFL IOOF Holdings Ltd DMP Domino Pizza Enterpr FXJ Fairfax Media Ltd GWA GWA Group Ltd JBH JB Hi-Fi Limited APA APA Group IPH IPH Limited ANN Ansell Limited WHC Whitehaven Coal WHC Whitehaven Coal REA REA Group SKI Spark Infrastructure SKC Skycity Ent Grp Ltd TAH TABCORP Holdings Ltd PRY Primary Health Care NVT Navitas Limited CPU Computershare Ltd OZL OZ Minerals TME Trade Me Group TME Trade Me Group BGA Bega Cheese Ltd SUN Suncorp Group Ltd SUN Suncorp Group Ltd RIO Rio Tinto Limited RMD ResMed Inc. WPL Woodside Petroleum AWC Alumina Limited SDF Steadfast Group Ltd PTM Platinum Asset Ex- Date 13-Jun Jul Jul Aug Aug Jun Aug Aug Aug Aug Aug Aug Aug-18 Pay Date 04-Jul Aug Aug Aug Sep Sep Sep-18 Amount cents/share Shares Estimated on Issue $m September

6 Economic Insights: bonanza: Payouts hit $28.5 billion Code Company Ex- Date AGL AGL Energy Limited. 22-Aug-18 OML Ooh!Media Limited APO Apn Outdoor Grp LLC Lendlease Group APX Appen Limited 03-Sep-18 WOR WorleyParsons Ltd AZJ Aurizon Holdings Ltd SFR Sandfire Resources BHP BHP Billiton Limited ALU Altium Limited 03-Sep-18 OSH Oil Search Ltd ASX ASX Limited RRL Regis Resources SBM St Barbara Limited CGF Challenger Limited TLS Telstra Corporation. BAP Bapcor Limited DOW Downer EDI Limited TLS Telstra Corporation. IGO Independence Group ILU Iluka Resources WES Wesfarmers Limited 20-Aug-18 IEL Idp Education Ltd IAG Insurance Australia MPL Medibank Private Ltd SHL Sonic Healthcare STO Santos Ltd MIN Mineral Resources. NST Northern Star HSO Healthscope Limited AOG Aveo Group GTY Gateway Lifestyle IRE IRESS Limited MMS McMillan Shakespeare EHE Estia Health Ltd RHC Ramsay Health Care AMP AMP Limited 22-Aug-18 BEN Bendigo and Adelaide 03-Sep-18 CBA Commonwealth Bank. SIQ Smartgrp Corporation BPT Beach Energy Limited TGR Tassal Group Limited EVN Evolution Mining Ltd SUL Super Ret Rep Ltd FMG Fortescue Metals Grp BLD Boral Limited CIM Cimic Group Ltd CWY Cleanaway Waste Ltd ING Inghams Group PGH Pact Group Hldgs Ltd 22-Aug-18 SEK Seek Limited CGC COSTA GROUP HOLDINGS CTD Corp Travel Limited Pay Date 02-Oct Oct Oct-18 Amount cents/share Shares Estimated on Issue $m September

7 Economic Insights: bonanza: Payouts hit $28.5 billion Code Company SGR The Star Ent Grp IVC InvoCare Limited MND Monadelphous Group QBE QBE Insurance Group BRG Breville Group Ltd GEM G8 Education Limited CWN Crown Resorts Ltd CTX Caltex Australia NCM Newcrest Mining WSA Western Areas Ltd TWE Treasury Wine Estate SPK Spark New Zealand SPK Spark New Zealand NHF NIB Holdings Limited SVW Seven Group Holdings WTC Wisetech Global Ltd PPT Perpetual Limited AHG Automotive Holdings. CCL Coca-Cola Amatil CNU Chorus Limited SXL Sthn Cross Media CAR Carsales.Com Ltd. QAN Qantas Airways LNK Link Admin Hldg COH Cochlear Limited ABC Adelaide Brighton ABC Adelaide Brighton S32 South32 Limited RWC Reliance Worldwide WEB Webjet Limited BXB Brambles Limited SDA Speedcast Int Ltd RSG Resolute Mining CSL CSL Limited WOW Woolworths Group Ltd FLT Flight Centre Travel BKL Blackmores Limited WOW Woolworths Group Ltd GXL Greencross Limited CCP Credit Corp Group ORA Orora Limited BSL BlueScope Steel Ltd AMC Amcor Limited NEC Nine Entertainment NWS News Corp.. MYO MYOB Group Ltd ASL Ausdrill Limited ASL Ausdrill Limited ARB ARB Corporation. SGM Sims Metal Mgmt Ltd QUB Qube Holdings Ltd QUB Qube Holdings Ltd HVN Harvey Norman Ex- Date 22-Aug Oct Oct Oct-18 Pay Date 08-Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Oct Nov-18 Amount cents/share Shares Estimated on Issue $m September