13 is lucky if you like dividends!

Thirteen is unlucky for some. For income investors, it just showed up as a 13% year-on-year lift in the total dollar value of dividends announced through August reporting season.

On our numbers, 66% of companies increased their payout, 10% held flat, and 24% cut. So, it’s a pretty good time to be an income investor.

It was resources that did the heavy lifting. Elsewhere it was a mixed bag with Coles and Woolworths quietly delivering ~16% profit and dividend growth. Consumer discretionary had a tougher time, with housing and higher electronics costs weighing on the usual suspects.

For all the hits, misses, and a few genuine surprises, watch our full 9-minute wrap-up or read a transcript below.

Transcript of interview with Dr Peter Gardner, Plato Investment Management

How did the headline look from a dividend and a capital growth perspective in the Australian reporting season?

The reporting season was really good from a dividend perspective actually. So when you look at the kind of total dollar value of dividends, it was actually up 13% on the last reporting season last year.

Now, if you think about what's happening in the last few years, since 2022, we've had a bit of a reduction in dividends mainly due to resource prices and quantity prices reducing and therefore the resource companies reducing their dividends. What's been positive in this result is that we've still seen the positive coming out of the domestic Australian companies, and then we've also seen those commodity companies start to increase their dividends as well.

So overall, 66% of companies increased their dividends, 10% had flat dividends, 24% reduced their dividends. So a lot more increases than decreases and a 13% overall dollar value increase.

Resources have been a really big talking point, AI build out. How did the resources companies report from, let's look at gold, iron ore, copper, and lithium as examples?

So if we start with gold, gold companies had a really good reporting season. We saw a couple of new gold companies pay dividends that hadn't paid them before, and we also saw some of the existing ones had big increases in dividends. So a company like Regis Resources increased its dividends by 300%, West Gold by 233%, and Perseus and Evolution increased them in the high double digits. So that was really good coming out of gold.

Copper also did really well. As you say, the AI build out is going forward and it's causing a big increase in the copper price. And so Sandfire, who hadn't paid a dividend before, they started paying dividends, which was good. And you also saw big dividend increases from BHP, which increased its dividends by 49%, and Rio, which increased its dividends by 30%.

As said in the previous video with BHP, it now makes up 54% of its earnings come from copper. So well over the earnings that it produces from iron ore. And that was why it was able to increase their dividends because iron ore was the one disappointment coming out of resources, that the iron ore price was down on what it was 12 months ago. And so Fortescue, for example, cut its dividends by 23%.

To finish it off, lithium, there was a good result from lithium; commodity prices up strongly in the last 12 months. And we saw Mineral Resources, Independence Group, and also PLS Limited all start reinstating their dividends again. And so they had paid dividends a few years ago, then they'd stopped paying dividends and now they've started again.

So all up positive from resources.

Let's turn to the other big sector in the market, banks. You've got the cost of living pressure, you've got rising interest rates, and also you've got the budget changes. How has that impacted the results for the banks?

So overall CBA's result from last financial year was pretty positive. Its profit was up 7%. It increased its dividends by 4%. Its margins were pretty strong. So that was all positive looking back. However, the big challenge coming out of the result, and you can probably see it on the slide in the bottom right-hand chart, was their mortgage application volumes have significantly softened. And so since the budget, they're down about 17%. When you look at the other major banks, they were down anywhere from 12 to 20%. And so given the impacts of the budget, there's a lot less people looking for investment loans, and so that's the challenge for the banks going forward given investment loans are higher margin loans as part of their business.

Now, they've got a huge back book, so it's not going to immediately flow through to profits, but in terms of their growth going forward, that's the area of the market that's challenged.

Moving on to the consumer, cost of living crisis impacting, how are things looking in consumer, non-discretionary and discretionary? Let's start off with discretionary items.

So discretionary was a little bit challenged, especially in the big ticket items. So when you're looking at anything exposed to the housing, given post the budget, housing's obviously fallen off quite a bit. And so when we see furniture retailers, so whether it's JB Hi-Fi through their Good Guys, Harvey Norman or Nick Scali, they all had hits to their sales as a result, particularly their sales going forward from July onwards.

When you look at electronics, so JB Hi-Fi had a bit of a weak result in electronics going forward as well. And that's largely because the AI build out has caused a big increase in both the price of chips and the price of memory, and that's flowing through to iPads, iPhones and laptops. And so JB Hi-Fi struggled a little bit with that.

But on the other end of the spectrum, if you look at consumer staples and supermarkets, their sales were up and their profits were up even more. So both Coles and Woollies increased their profits by around 16% and increased their dividends by the same amount. And so that was really positive. Woolworths obviously won, as I pointed out earlier with the Yoshi's campaign, and so their sales are looking really good for July and August, but both Coles and Woollies did really well.

With the war in the Middle East also impacting markets around the world, how did this impact Australia's major oil refiner, Ampol?

It was a great result from Ampol. Their profits were up about 370% and they increased their dividends by 363% on last year. So their yield is huge at the moment. If you annualize this dividend, which you probably shouldn't do, but if you annualize this dividend, it'd be a gross yield of around 15%, and they're only paying out 50% of their earnings. So you can see based on current refining margins, how cheap Ampol is.

Now, no one expects the current refining margins to continue, but given the disruptions in Russia due to Ukraine hitting their refineries, obviously in the Middle East with The Strait of Hormuz being somewhat closed at the moment, and also China also not exporting as much refined products as they previously did, all of those are kind of hitting the refined margins coming out of the rest of the world. And so that's helping a company like Ampol or also Viva Energy.

What are your key dividend traps, and I suppose how is it compared to history in terms of dividend trap analysis?

Overall dividend traps were probably lower than on average this reporting season given it was pretty strong. There's always a few of them out there. So we saw cuts coming from some of the US dollar reporting companies given the Australian dollar's been up over the last 12 months.

We also saw cuts from Endeavour Group. And so the alcohol companies are still struggling as consumers consume less alcohol at the moment. Beach Energy; so even though things are pretty good in oil land, there are some oil producers that are struggling and Beach Energy cut its dividends by two thirds. And lastly, Aurora, who are a packaging company, they cut their dividends as well by about 20%.

And so it's not all perfect, but in terms of the outlook going forward, when we look at our aggregate of our dividend cut model at the total market level, we find it's actually below average, which means there's a lower chance of the overall market cutting their dividends, and that's why we've seen strong increases this reporting season.

So going forward, we're fairly positive about dividends.

What your outlook is for dividends and the Australian market.

So the challenges for the Australian market at the moment are obviously housing given the impacts of the budget and interest rate increases. And so that's going to challenge bank earnings going forward, and as a result, the consumer discretionary going forward. So they're the challenged areas of the market.

But when you look at commodities and what's happening there, that's definitely improving the Australian economy overall and also impacting the mining service companies as well. So they're benefiting from both the build out in resources, but also the AI build out is impacting some of those service companies as well.

So overall, we kind of say we're cautiously optimistic about the Australian economy. There are some challenges there, but there are also some positives as well.

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