Economic Insights

Economics | September 23 2015

Aussie shareholders prepare for big payouts

Economic and Financial market perspectives
Cash payouts: Over the next two months, conservatively around $22 billion (or around 1.4 per cent of
GDP) will be paid out by companies in dividends to shareholders.
Dividends in vogue: The majority of companies reporting full-year earnings results (91 per cent) chose to
pay a dividend and 85 per cent of these companies lifted or maintained dividends.
Injection into the economy: Over the week beginning September 28, around $13 billion will be paid out by
listed companies to their shareholders.

What does it all mean?

It may have been a tough year, but companies have been determined to give something back to shareholders.
And this will be highlighted in the next few weeks. Over the next three weeks, $20.7 billion will be paid out by
companies to shareholders as dividends. In total, over the next two months around $22 billion will move from the
corporate sector to investors. Companies have been facing tough competition from other companies and other
asset classes to retain the affection of investors. And the lure of attractive and sustainable dividends has been
important in this regard.

Investors have a choice of either spending, saving or reinvesting

dividends and the dollars are already flowing. Rio Tinto paid out
around $615 million relatively early on September 10 and
Suncorp paid out around $643 million yesterday. Woodside
Petroleum pays out almost $760 million today with Telstra to
deliver around $1,900 million to shareholders on Friday.

Last year the ASX 200 put on around 450 points or 7 per cent in

ESTIMATED DIVIDENDS
paid from September 21 to December 1
Selected companies

BHP Billiton
Commonwealth Bank
Telstra
Wesfarmers
Woolworths
Woodside Petroleum
Suncorp Group
CSL
AMP Limited
Insurance Aust. Grp.
Amcor
Aurizon Holdings
Origin Energy
QBE
AGL Energy
Brambles
ASX
Spark New Zealand
Sonic Healthcare
Alumina

$M
4649.0
3613.0
1895.0
1247.4
912.0
758.7
643.3
418.3
409.8
389.0
337.4
295.0
277.4
273.8
229.4
219.4
184.1
181.2
164.8
159.4

Estimates based on dividends & shares on issue

Source: CommSec, ASB Securities, company accounts
Note, Rio Tinto paid $615m to Aust shareholders on Sep 10.
(in total $2,646m paid incl. Rio Tinto plc)

Craig James Chief Economist (Author)

Twitter: @CommSec

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Economic Insights. Aussie shareholders prepare for big payouts

a three-week period from October 13. The question is

whether another big inflow of cash provides another boost
this year.

The Profit Reporting Season Unremarkable

Regular readers would be aware that each six months

CommSec undertakes a detailed review of the profit
reporting season the time when companies report halfyear 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).

As a recap, the past reporting season was largely

unremarkable. Profits didnt soar nor slump. Same for
dividends and same for cash levels. But that is entirely
understandable when you consider the unremarkable
performance of the Australian economy over the past
year.

CommSec assessed the results of 143 companies from the ASX 200 index that reported earnings for the year to
June 2015.

In aggregate, revenue grew by 0.4 per cent to $579.3 billion while expenses grew by 3.1 per cent to $477.6 billion,
leading to a 31.9 per cent fall in net profit to $35.9 billion (in the half-year earnings to December, profit fell by 26.2
per cent).

But there was a sharp lift in the variability of bottom-line earnings with some companies choosing to take
impairments to bottom-line earnings. Stripping out outliers, we estimated that underlying aggregate revenues
rose by 2.0 per cent, expenses rose by 2.2 per cent and aggregate profits fell by 3.0 per cent.

The bad news was that only 117 of 143 companies (81.8 per cent) reported a profit below the long-term
average. But of companies reporting profits in the earnings season, 71.7 per cent lifted profits, compared with 65
per cent in the interim reporting season. And just short of 61 per cent of all companies actually improved bottomline results.

In the last earnings season (six months to December) cash levels fell by 10.1 per cent. In the latest results, cash
holdings were down by 13.6 per cent. But 74 companies lifted cash levels and 69 cut cash levels on a year ago.
Excluding outliers, cash levels were up 3.9 per cent on a year ago.

In fact if you put all companies together (170 companies) total cash earnings were $100.7 billion. Of these
companies, eight large companies each reduced cash holdings by a $1 billion or more. If these outliers are
excluded, then aggregate cash levels actually lifted by 5.4 per cent.

Dividends have been complicated to some extent because a number of companies indicated that they would pay
special dividends or return cash to shareholders but not pay a formal final dividend. Including special dividends,
dividends rose in aggregate by 6.5 per cent despite variable profits and lower cash reserves. And 91 per cent of
all companies chose to pay a dividend, above the long-term average of 83.7 per cent. Of all companies issuing a
dividend, 63 per cent lifted dividends, 22 per cent maintained dividends while 15 per cent cut dividends.

September 23 2015

Economic Insights. Aussie shareholders prepare for big payouts

The Bottom Line: Our summation of the earnings season

Corporate Australia is at the cross-roads. Earnings have been hard to generate in the past year, and if anything
this is likely to continue. The speed limit for the economy appears to have fallen from around 3 per cent to at
least around 2.75 per cent. At the same time, the Chinese economy continues to mature with the growth rate for
the economy understandably expected to slow over coming years. China is rebalancing away from production to
consumption, but at the same time the Indian economy doesnt seem poised at least not yet to go down the
Chinese path, that is, recording strong rates of investment and production.

Australian companies are in strong financial shape. The main criticism is that too many companies are
comfortable staying on the treadmill paying out dividends rather than expanding, investing, looking for merger or
acquisition opportunities or embarking on major exercises to boost productivity or efficiency. The strong shape of
Corporate Australia, growing population, proximity of Australia to the fast growing Asia region and weaker Aussie
dollar wont be lost on foreign companies looking for takeover targets. That has already been apparent. But
further acquisitions of Aussie companies may raise community concerns.

The interim 2015 profit results (six months to June 2015)

Of companies reporting half-year 2015 results, importantly every company reported a profit an extraordinary
event. But 16 of the 29 lifted profits compared with a year ago, down from 18 (of 29 companies) in the full-year
reporting period.

Excluding outliers, aggregate sales in the six months to June fell by 0.3 per cent while the cost of sales or
expenses fell by 1.6 per cent. Earnings per share rose by 3.3 per cent, dividends rose by 3.5 per cent and cash
holdings fell by 0.5 per cent to $31.4 billion. All but one company provided a dividend with all companies that paid
a dividend electing to lift or maintain dividend payments.

The Dividend Timeline

ASB Securities provides a calendar showing the dates when companies go ex-dividend, that is, trade without the
benefit of their dividends. ASB Securities also have a calendar detailing when companies are scheduled to pay
out dividends. But a comprehensive list of the actual dollar value of dividends to be paid out by companies is not
generally available.
Using iress data showing the number of shares outstanding, CommSec has estimated that just over $22 billion
will be paid to shareholders from early September to early December 2015. The key period for dividend payments
is the three-week period beginning September 21 and ending October 9.
Over the three week period to October 9, $20.7 billion will be paid out as dividends by listed companies: in the
week ending September 25, dividends totalling $4.6 billion will be paid, in the week ending October 2, $13 billion
will be paid out as dividends; and in the week ending October 9 dividend payments totalling over $3.1 billion will
be made.
As always, some of these dividends will be paid to ordinary investors, some paid to superannuation funds while
other dividends will be paid to offshore investors. (BHP Billiton will pay out around $4.65 billion in dividends with
$2.8 billion paid to BHP Billiton shareholders and $1.85 billion paid to BHP Billiton plc shareholders.) And some
investors will take the dividends as cash while others may choose to reinvest them.

What are the implications for investors?

Some investors have a choice over the next few

weeks. That is, those investors who still elect to
receive dividend payments in cash direct to their
accounts or by cash. They can choose to spend the
extra proceeds, save the proceeds (leave it in the
bank) or use the funds in addition to other savings to
reinvest back into shares or other investments.

For companies, retailers and financial firms, the

dividends flowing through to shareholders clearly
represent opportunities. The Reserve Bank also needs
to be mindful as stronger confidence and an inflow of
funds represent a potential spending boost.

Craig James, Chief Economist, CommSec

Twitter: @CommSec

September 23 2015