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Financial Happenings Blog
Saturday, March 07 2009

One of the fears before entering the latest company reporting season was how much dividends would be impacted by the current climate.  This firm sees the dividend story as a key aspect of the decision to invest in Australian shares especially given the dividend imputation system which has been in effect here since the 1980s.

A report I read yesterday provided some interesting details about the most recent reporting season - Feb profits season avoids disaster, but harder times ahead The key points for me were:

  • Company results for the fiscal 2009 first half reporting season in February were "no worse than mixed", Citigroup analysts said in a report.
  • Companies delivering surprisingly positive results outnumbered those with disappointing results by 10 to nine, with the balance performing broadly in line.
  • Nevertheless, median net profit growth was down four per cent on the prior corresponding period, the investment bank added.
  • CommSec's analysis of the results of more than 270 companies showed average first half earnings per share (EPS) was down 6.1 per cent on the prior corresponding period, excluding the diversified financial and real estate sectors which were dominated by asset writedowns.
  • CommSec's profit season analysis also found, surprisingly, that many companies maintained or increased interim dividend payments despite difficult markets.
  • Of 273 companies in CommSec's sample, 47 lifted dividends, 125 maintained them at the same level, and 101 reduced them.
  • Goldman Sachs JBWere analysts said that of the companies they covered, 51 per cent reduced dividends, 20 per cent held them steady, and 29 per cent increased them, leaving total dividends paid to fall by 2.3 per cent.  Full year dividends for fiscal 2009 are expected to fall by 18 per cent on the prior year, and then rebound in 2010.

You would have to be blind Freddy not to see that the current climate for companies is tough.  However the actual income that is being passed on by these companies to their investors is not slit your throat stuff.  Back last month I suggested that we would have to see cuts in dividends in the order of 50-60% across the board for the yield from these investments to be beaten by the yield from cash.

Unfortunately, as is always the case with investing otherwise it would be a free lunch for everyone, there are other factors including the risk of a long term financial downturn.  This suggests to me that investors should be continuing to take a prudent and careful approach to investing in growth assets but for those with a long investment timeframe, investments in shares are worthy of consideration. If you would like to see our approach to this decision please take a look at our Building Portfolios page.

Scott Keefer

Posted by: AT 03:01 am   |  Permalink   |  Email
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