The dividend reporting season has ended with a mere pass mark for earnings but a clear A-plus for capital management.
As weary analysts readjust to normal sleep patterns after the deluge of announcements (cue violins), investors could be forgiven for thinking it was all a bit of a yawn. Lower commodity prices dented resource companies despite a big surge in production. Industrial company profits were adequate without being spectacular.
But Boards everywhere pandered to investors by nudging up dividend payout ratios to around 80% of total profits. Dividend growth averaged 6.4% in FY14 so that when added to the languid earnings growth rate of 2.9% gave a total return just short of 10%.
Among the stock reports we liked was REA Group with another growth spurt of 38% at the operating profit level. New CEO Tracey Fellows will enjoy piloting this company especially if FXJ decides to float Domain making the comparisons much more transparent.
Commonwealth Bank reported another record cash earnings of $8.68 billion but the market is so full of this behemoth that it lopped 2.9% off the price during August once the final dividend of $2.18 was washed down grateful gullets. CBA then casually went out and raised another A$2.6 billion through its over-subscribed PERLS VII Capital Notes issue.
AMP and Suncorp delighted investors with the latter churning out another special dividend.
Ramsay Healthcare rolled out another good annual performance and said next year will be quite nice too. A full year of French earnings will help, no doubt.
Amcor delivered its last report in Australian dollars and will re-base in USD in FY15. Its full year result was clean and comprehensive with metrics all pointing in the right direction.
We didn’t get much joy from the engineering and construction, building materials or transport sectors. The Qantas saga entered a new phase with the possibility of a separated international business but we are sceptical the industry can sustain its discipline on capacity. We still like the structurally advantaged Sydney Airport and with a new Duty Free partner tucked away for the next 7½ years, it should continue to truck along nicely.
The energy triplets of Woodside Petroleum, Santos and Oil Search provided acceptable results. Each has its own issues with which to deal, but all have big waves of cash flow heading to shore for investors from their respective LNG investments.
Consumer stocks haven’t all reported yet but of those that did, we liked the Bunnings result inside the Wesfarmers report. Its Coles food and liquor business is still improving but the easy yards have now been made and Woolworths remains the benchmark in supermarket and liquor retailing in Australia. Harvey Norman gave a little less to its franchisees and a little more to its shareholders but we still don’t like the structure of this company. Dick Smith pipped its prospectus forecasts and is giving JB Hi-Fi something to think about in the consumer electronic space. Refurbishments, higher labour costs, intense competition, warm winter weather and all manner of issues dunked Myer’s annual profit by 22.6% and took the dividend down to 14.5cps for the full year. At that level it is still yielding over 9% on a gross basis but beware, it could only be a one-season fad.
At around 15x, the Australian equity market seems inexpensive although concentrating a portfolio towards higher quality companies will certainly appear to look otherwise.