The Australian June 30 reporting season accelerates noticeably this week. After a couple of weeks of scattered updates, seven major reports will be issued this week.
The most notable will be the interim from Rio Tinto on Thursday and whether it will continue with a relatively high level of dividends, or start conserving cash as global commodity prices continue falling.
But there will be also interesting reports from Suncorp – the regional banking and national insurer – it will be the first financial company to report and will be a precursor to the full year figures on August 12 from the Commonwealth Bank.
As well, BWP Trust reports midweek – its the property trust associated with Bunnings hardware chain owned by Wesfarmers. Contractor, Downer EDI joins Rio in reporting on Thursday and while consumer finance group, Flexigroup reports on Friday. It has already provided a solid update in revealing a change of leadership.
The AMP’s chief economist, Dr Shane Oliver says profit growth for 2014-15 is "likely to be around -1% as resource sector profits slump 28% thanks to the hit from lower commodity prices.”
But he says that "the rest of the market seeing profit growth of around 9% as banks and financials continue to perform well and industrials ex financials benefitting from low interest rates, the lower $A and cost cutting.
“Key themes are likely to be: weak revenue growth, ongoing cost cutting, competitive pressures amongst consumer staples but tailwinds for building material companies and continued strength in dividend growth.”
In the US 90 S&P 500 companies are down to report June results this week. Media stocks will dominate, led by Walt Disney, Time Warner, CBS, 21st Century Fox, Liberty Media, Liberty Global, Cablevision and the New York Times.
As well, other companies reporting will include AIG, Archer Daniels Midland, CVS, Chesapeake Energy, Michael Kors, Motorola, Priceline, First Solar, Coach, Aetna, Kellog, Ralph Lauren and on Friday night, Warren Buffett’s Berkshire Hathaway.
Offshore major companies reporting include Toyota, BMW, Isuzu, Yamaha Motors, the German insurer, Allianz.
Meanwhile, the AMP’s Dr Oliver wonders whether Australian companies are really paying out too much in dividends?
“With the August profit reporting season the focus will no doubt return again to the high dividend payout ratios of Australian companies in response to yield hungry shareholders,” he wrote at the weekend.
“Some allege that this is robbing future growth potential and risks a "doom loop" turning Australia into a "backwater."
“But is it really,” he asks. Dr Oliver says the story needs some perspective.
“The dividend payout ratio of Australian companies at around 75% is not out of line with its long term range."
Source AMP Capital
Yes, he says the ratio has increased since 2012, “but this has been driven by higher payouts for resources stocks and there is a good reason for this."
"After their huge investment in new mining capacity it makes sense to use excess cash flow now to return to investors via dividends. For the rest of the market the payout ratio has been going sideways!
“Second, it’s far healthier for companies to pay strong dividends (provided they are not being paid using debt) because it signals sustainable cash flows, confidence in future earnings and helps prevent corporate hubris leading to wasteful investment.
“Finally, capex in Australia is now too low and needs to rise – but the reason its low has nothing to do with investors’ desire for dividends.
“Miners would be crazy to ramp up in investment now and the reason industrial companies are reluctant to invest owes to the beating they got through the mining boom years and a lack of corporate confidence post the GFC which is a global phenomenon,” Dr Oliver says.
