Rudi’s View: BHP, Dividends, And Breville Group

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Aug 26 2021

BHP, Dividends, And Breville Group

By Rudi Filapek-Vandyck, Editor FNArena

So far, so good. Eight days from the end of the domestic corporate results season (six trading sessions plus one weekend) and genuine 'beats' are outnumbering disappointing 'misses' by almost a factor of two-to-one.

More companies feel comfortable enough to provide some kind of guidance, though that is to be read as 'more than feared' beforehand, not a reference to the majority. Many companies are swimming in cash, and they have not hesitated to reward shareholders through increased payouts, special dividends, share buybacks, and M&A.

The share market as a whole is up for the month and local indices would have performed a lot better if not for the global growth scare that is unfolding in the background, which is partially why specific price charts for the likes of Fortescue Metals look like a fall-off-the-cliff experience -suddenly, quickly and savagely- but this also explains why AUDUSD has been below 72c instead of nearer to 80c.

Also, typically for Australia, the FNArena Corporate Results Monitor still only comprises of 140 reports, or an estimated 40% of the total number of individual companies. This goes a long way in explaining why most stockbrokerages are no longer publishing intermediate running updates on the season.

We still await more than 50% of financial results from the companies scheduled to report in August. Apparently, it's the bottleneck in accountants domestically we should blame for this out-of-kilter, heavy skew.

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Some of the early indications have solidified and gained more traction as the numbers to date have accumulated to 140 corporate updates. Many a company in Australia can report its sales, if not profits and dividend, have recovered to pre-pandemic level, or it anticipates to achieve full recovery over the year ahead.

This observation is incredibly important for a share market that has continued to trend upwards, setting new all-time record highs along the way. Most surprises, however, have come through cash dividends for shareholders with company boards lifting payout ratios much sooner than anticipated, despite ongoing challenges posed by the global pandemic.

In hindsight, it can be concluded both ANZ Bank ((ANZ)) and National Australia Bank ((NAB)) gave local investors the earliest indications that corporate Australia was gripped by quite an optimistic mindset in June.

August is not solely providing bliss and happiness, of course. While June-half financial numbers have been better-than-forecast on balance, the outlook for the December-half for many companies is a lot more circumspect as lockdowns across Australia remain in place.

Estimates are thus falling for retailers, travel agents, leisure companies, et cetera. The market is drawing confidence from the past in that once lockdowns end, a strong recovery should follow. This is why, so far, reduced forecasts because of renewed impact from lockdowns has not been met with savage punishment this month.

The market looks forward. One observation is that share prices remain supported by confidence that temporary lockdowns, even when extended, shall be followed up by a swift recovery in sales. This confidence is fueled by numerous companies reporting they were performing better-than-expected up until new lockdowns were announced in NSW, then Victoria and elsewhere.

Unsurprisingly, companies announcing a share buyback usually are rewarded through additional outperformance, though not in every case. Note, for example, the differences in share price performances for Janus Henderson ((JHG)), Suncorp ((SUN)) and Telstra ((TLS)) -all very strong- with the negative outcomes for Fletcher Building ((FBU)) and Emeco Holdings ((EHL)).


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The Big Surprise this season has come from dividends and here, Janus Henderson reports, we are witnessing a global phenomenon. Global dividends experienced a sharp fall in 2020, but Janus Henderson forecasts total payout will rise above the pre-pandemic high in the year ahead.

Global dividends rose by 26% in the second quarter ending June 30th, so this month's sharp increases announced in Australia are not even included yet. On the fund manager's calculations, global dividends have now recovered to $628.3bn (US$471.7bn) for the quarter, which is only -6.8% below the level paid out in Q2 last year.


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