Economics | March 22 2018

Dividends 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.  Dividends 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: Dividends totalling $18 billion will be paid out by listed companies to their shareholders in the next four weeks.

What does it all mean?  Dividends 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 Twitter: @CommSec

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Economic Insights: Dividends top $22 billion, but have they peaked?

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 www.commsec.com.au/reportingseason  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 (long- term 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 Dividend 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 2018. 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,

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Economic Insights: Dividends top $22 billion, but have they peaked?

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 2009.  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 Twitter: @CommSec

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Economic Insights: Dividends top $22 billion, but have they peaked?

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Economic Insights: Dividends top $22 billion, but have they peaked?

Dividend Shares Estimated Ex-dividend Dividend Amount on Dividend Code Company date Pay Date Cents/share Issue $m VVR REIT 31-Jan-18 15-Feb-18 6.6 725749702 47.90 CYB Cybg PLC 18-Jan-18 16-Feb-18 1.7 751583616 13.03 MFG Magellan Fin Grp Ltd 09-Feb-18 20-Feb-18 44.5 172332358 76.69 WFD Westfield Corp 13-Feb-18 28-Feb-18 16.3 2078089686 337.78 SCG Scentre Grp 13-Feb-18 28-Feb-18 10.9 5324296678 578.75 WHC Whitehaven Coal 23-Feb-18 02-Mar-18 13.0 1026045885 133.39 JHG 15-Feb-18 02-Mar-18 40.4 89022765 35.94 GUD G.U.D. Holdings 13-Feb-18 02-Mar-18 24.0 86185698 20.68 GWA GWA Group Ltd 22-Feb-18 06-Mar-18 8.5 263947630 22.44 ANN Limited 16-Feb-18 08-Mar-18 25.9 143188312 37.06 MIN Mineral Resources. 15-Feb-18 08-Mar-18 25.0 187523905 46.88 DMP Domino Pizza Enterpr 20-Feb-18 08-Mar-18 58.1 87614244 50.90 JBH JB Hi-Fi Limited 22-Feb-18 09-Mar-18 86.0 114883097 98.80 BLD Limited 19-Feb-18 09-Mar-18 12.5 1172331924 146.54 DHG Domain Holdings Aus 23-Feb-18 12-Mar-18 4.0 574871064 22.99 TAH Ltd 13-Feb-18 13-Mar-18 11.0 2010448949 221.15 IFL IOOF Holdings Ltd 23-Feb-18 14-Mar-18 27.0 351076027 94.79 IPH IPH Limited 20-Feb-18 14-Mar-18 11.5 197280268 22.69 APA APA Group 28-Dec-17 14-Mar-18 21.0 1114307369 234.00 FXJ Fairfax Media Ltd 27-Feb-18 14-Mar-18 1.1 2299475546 25.29 GTY Gateway Lifestyle 28-Dec-17 15-Mar-18 3.8 301295195 11.30 AWC 27-Feb-18 15-Mar-18 11.8 2879843498 341.09 RMD ResMed Inc. 07-Feb-18 15-Mar-18 3.2 1428919708 45.01 SKI 05-Mar-18 15-Mar-18 7.6 1682010978 128.25 NVT Navitas Limited 28-Feb-18 15-Mar-18 9.4 358082989 33.66 REA REA Group 01-Mar-18 16-Mar-18 47.0 131714699 61.91 SKC Skycity Ent Grp Ltd 01-Mar-18 16-Mar-18 9.2 652750845 60.08 OML Ooh!Media Limited 23-Feb-18 16-Mar-18 10.5 164930795 17.32 CCP 05-Mar-18 16-Mar-18 31.0 47709025 14.79 GMA Genworth Mortgage 01-Mar-18 16-Mar-18 12.0 473813684 56.86 CPU Ltd 20-Feb-18 16-Mar-18 19.0 542955868 103.16 PTM Platinum Asset 01-Mar-18 19-Mar-18 16.0 586678900 93.87 SFR Sandfire Resources 05-Mar-18 20-Mar-18 8.0 157979530 12.64 TME Group 08-Mar-18 20-Mar-18 10.7 397277330 42.53 RRL Regis Resources 08-Mar-18 21-Mar-18 8.0 504279661 40.34 AHY Asaleo Care Limited 27-Feb-18 22-Mar-18 6.0 543122491 32.59 LLC Group 27-Feb-18 22-Mar-18 34.0 583983339 198.55 WPL 22-Feb-18 22-Mar-18 62.6 900381352 563.74 SGR The Star Ent Grp 21-Feb-18 22-Mar-18 7.5 825672730 61.93 BKL Limited 07-Mar-18 22-Mar-18 150.0 17226619 25.84 SDF Steadfast Group Ltd 26-Feb-18 22-Mar-18 2.8 790035955 22.12 HSO Limited 01-Mar-18 23-Mar-18 3.2 1738152298 55.62 GXL Greencross Limited 27-Feb-18 23-Mar-18 10.0 117788310 11.78 IRE IRESS Limited 28-Feb-18 23-Mar-18 28.0 171506969 48.02 Source: , CommSec

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Economic Insights: Dividends top $22 billion, but have they peaked?

Dividend Shares Estimated Ex-dividend Dividend Amount on Dividend Code Company date Pay Date Cents/share Issue $m EHE Estia Health Ltd 01-Mar-18 23-Mar-18 7.8 260602749 20.33 GEM G8 Education Limited 08-Mar-18 23-Mar-18 10.0 448536926 44.85 AGL AGL Energy Limited. 22-Feb-18 26-Mar-18 54.0 655825043 354.15 WOR WorleyParsons Ltd 27-Feb-18 26-Mar-18 10.0 272879150 27.29 AZJ Holdings Ltd 26-Feb-18 26-Mar-18 14.0 2006279997 280.88 PPT 28-Feb-18 26-Mar-18 135.0 46574426 62.88 OZL OZ Minerals 09-Mar-18 26-Mar-18 14.0 298664750 41.81 PRY Primary Health Care 16-Mar-18 27-Mar-18 5.1 521852929 26.61 CGF Challenger Limited 27-Feb-18 27-Mar-18 17.5 610582776 106.85 BHP BHP Billiton Limited 08-Mar-18 27-Mar-18 69.4 3211691105 2230.34 CBA Commonwealth Bank. 14-Feb-18 28-Mar-18 200.0 1752728198 3505.46 MPL Private Ltd 06-Mar-18 28-Mar-18 5.5 2754003240 151.47 ASX ASX Limited 08-Mar-18 28-Mar-18 107.2 193595162 207.53 BGA Bega Cheese Ltd 06-Mar-18 28-Mar-18 5.5 185054790 10.18 AMC Limited 27-Feb-18 28-Mar-18 26.2 1158141276 303.09 ALU Limited 02-Mar-18 28-Mar-18 13.0 130284942 16.94 IGO Independence Group 12-Mar-18 28-Mar-18 1.0 586823475 5.87 SBM Limited 06-Mar-18 28-Mar-18 4.0 515427192 20.62 SGM Sims Metal Mgmt Ltd 13-Mar-18 28-Mar-18 23.0 202306676 46.53 AMP AMP Limited 21-Feb-18 28-Mar-18 14.5 2918469137 423.18 BRG Ltd 08-Mar-18 29-Mar-18 16.5 130095322 21.47 EVN Ltd 23-Feb-18 29-Mar-18 3.5 1692612049 59.24 BPT Limited 08-Mar-18 29-Mar-18 1.0 2276155671 22.76 MMS McMillan Shakespeare 15-Mar-18 29-Mar-18 33.0 83204720 27.46 IAG Insurance Australia 20-Feb-18 29-Mar-18 14.0 2367524344 331.45 BEN Bendigo and Adelaide 01-Mar-18 29-Mar-18 35.0 482156366 168.75 TGR Group Limited 14-Mar-18 29-Mar-18 8.0 173275247 13.86 RHC 06-Mar-18 29-Mar-18 57.5 202081252 116.20 OSH Ltd 06-Mar-18 29-Mar-18 6.9 1523631192 105.81 MND Monadelphous Group 07-Mar-18 29-Mar-18 30.0 94009428 28.20 TLS Corporation. 28-Feb-18 29-Mar-18 3.5 11893297855 416.27 RWC Reliance Worldwide 08-Mar-18 29-Mar-18 3.5 525000000 18.38 TLS Telstra Corporation. 28-Feb-18 29-Mar-18 7.5 11893297855 892.00 BSL BlueScope Steel Ltd 02-Mar-18 03-Apr-18 6.0 556088460 33.37 NHF NIB Holdings Limited 01-Mar-18 03-Apr-18 9.0 454848869 40.94 SUL Super Ret Rep Ltd 28-Feb-18 03-Apr-18 21.5 197240020 42.41 DOW Downer EDI Limited 06-Mar-18 04-Apr-18 13.0 594702512 77.31 CWN Ltd 20-Mar-18 04-Apr-18 30.0 688847822 206.65 AHG Automotive Holdings. 15-Mar-18 04-Apr-18 9.5 331623014 31.50 MYO MYOB Group Ltd 08-Mar-18 05-Apr-18 5.8 605531287 34.82 WES Limited 26-Feb-18 05-Apr-18 103.0 1133840242 1167.86 S32 Limited 08-Mar-18 05-Apr-18 3.8 5180751231 197.31 PGH Pact Group Hldgs Ltd 01-Mar-18 05-Apr-18 11.5 332483890 38.24 FMG Fortescue Metals Grp 01-Mar-18 05-Apr-18 11.0 3113798151 342.52 Source: iress, CommSec

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Economic Insights: Dividends top $22 billion, but have they peaked?

Dividend Shares Estimated Ex-dividend Dividend Amount on Dividend Code Company date Pay Date Cents/share Issue $m S32 South32 Limited 08-Mar-18 05-Apr-18 5.5 5180751231 282.81 SUN Ltd 21-Feb-18 05-Apr-18 33.0 1296020378 427.69 CGC HOLDINGS 14-Mar-18 05-Apr-18 5.0 319698581 15.98 QUB Ltd 07-Mar-18 05-Apr-18 2.7 1604230693 43.31 CTX Caltex Australia 12-Mar-18 06-Apr-18 61.0 260810519 159.09 IVC InvoCare Limited 05-Mar-18 06-Apr-18 27.5 110030298 30.26 SPK 15-Mar-18 06-Apr-18 1.4 1834949099 25.69 TWE Treasury Wine Estate 07-Mar-18 06-Apr-18 15.0 718663546 107.80 CWY W aste Ltd 13-Mar-18 06-Apr-18 1.1 2033543872 22.37 SPK Spark New Zealand 15-Mar-18 06-Apr-18 9.8 1834949099 180.37 WOW Woolworths Group Ltd 01-Mar-18 06-Apr-18 43.0 1304750193 561.04 WTC Wisetech Global Ltd 09-Mar-18 06-Apr-18 1.1 291163537 3.06 SHL 06-Mar-18 10-Apr-18 32.0 422761259 135.28 CCL Coca-Cola Amatil 26-Feb-18 10-Apr-18 26.0 740418754 192.51 CTD Corp Travel Limited 07-Mar-18 11-Apr-18 15.0 106108452 15.92 SXL Sthn Cross Media 02-Mar-18 12-Apr-18 3.8 769013605 28.84 BXB 07-Mar-18 12-Apr-18 14.5 1591152255 230.72 COH 19-Mar-18 12-Apr-18 140.0 57547820 80.57 QAN Airways 07-Mar-18 12-Apr-18 7.0 1745108771 122.16 RIO Limited 01-Mar-18 12-Apr-18 228.5 412414348 942.49 CSL CSL Limited 14-Mar-18 13-Apr-18 100.5 452270516 454.51 SEK 26-Mar-18 13-Apr-18 24.0 350655882 84.16 FLT Travel 22-Mar-18 13-Apr-18 60.0 101063678 60.64 ABC Adelaide Brighton 29-Mar-18 13-Apr-18 12.0 650272495 78.03 ABC Adelaide Brighton 29-Mar-18 13-Apr-18 4.0 650272495 26.01 NST Northern Star 27-Mar-18 13-Apr-18 4.5 603171969 27.14 ORA Orora Limited 28-Feb-18 16-Apr-18 6.0 1206684923 72.40 INM Iron Mountain Incorp 14-Mar-18 16-Apr-18 51.8 48264810 25.02 CNU 19-Mar-18 17-Apr-18 8.4 424694208 35.61 NEC 06-Mar-18 18-Apr-18 5.0 871373191 43.57 NWS News Corp.. 13-Mar-18 18-Apr-18 9.0 48666392 4.36 WEB Limited 27-Mar-18 18-Apr-18 8.0 118831075 9.51 CAR .Com Ltd. 22-Mar-18 19-Apr-18 20.5 242517960 49.72 SVW 26-Mar-18 20-Apr-18 21.0 316485208 66.46 APO Apn Outdoor Grp 12-Mar-18 20-Apr-18 12.5 167005841 20.88 QBE QBE Insurance Group 08-Mar-18 20-Apr-18 4.0 1359596321 54.38 ARB ARB Corporation. 05-Apr-18 20-Apr-18 17.5 79204214 13.86 ILU 27-Mar-18 23-Apr-18 25.0 418700517 104.68 HT1 Ht&E Limited 28-Mar-18 26-Apr-18 4.0 308912092 12.36 BAP Bapcor Limited 15-Mar-18 27-Apr-18 7.0 279565427 19.57 LNK Link Admin Hldg 27-Mar-18 30-Apr-18 7.0 492545961 34.48 HVN 05-Apr-18 01-May-18 12.0 1113621911 133.63 NCM 21-Mar-18 02-May-18 9.5 767448483 73.07 SDA Speedcast Int Ltd 08-Mar-18 23-May-18 4.8 238992149 11.47 CIM Cimic Group Ltd 13-Jun-18 04-Jul-18 75.0 324254097 243.19 Source: iress, CommSec

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