Reporting season dividend diary
With one week remaining, this February reporting season has brought about a sigh of relief for many income investors. In fact, the phrase 'dividend bonanza' has been unleashed once again in some parts.
FY19 was the last time the Plato team described a period as a dividend bonanza. We don't think we're back there just yet, but the indicators are good. We're very much on track to return to the strong yield we’re used to from Australian equities.
In an environment where the returns on cash-backed assets are so low, a diversified portfolio of dividend-paying equities has once again become a saving grace for those who rely on income from their investments to make ends meet.
So, here's Plato's dividend diary, summarising some of the stand-out dividend results we've seen during the month thus far.
Fortescue Metals Group (FMG)
Gross yield 8.6%
A record-breaker. Net profit up 67% on prior corresponding period and a record dividend of $1.47 declared, up 93%. If you annualise this dividend, the gross yield stands at 17.6% and the iron ore price is currently above the average over the past 6 months. So, if iron ore continues to trade at these levels the pay out over the next 12 months could be significant.
The profit margin Fortescue is now delivering is 71%, their ROE is 47%.
Rio Tinto (RIO)
Dividend US$3.09 + US$0.93 special dividend
Gross yield 5.8%
Another record-breaking dividend. Including the special dividend, it equates to a 74% increase on last year. Underlying earnings up 20% to US$12.4 billion as the company benefits from strong commodity prices.
Interestingly, with debt of only US$700 million, the company could have actually paid out more. The debt level is very low compared to industry peers.
Gross yield 4.1%
And another record dividend declared, despite net profit of US$6 billion being slightly below market expectations. The underlying earnings per share does however remain 16% above what it was last year.
BHP’s payout ratio has been boosted up to 85% and gross debt is still below its desired range. The company provided bullish commentary around the global economy and commodity prices.
Mineral Resources (MIN)
Gross yield 3.9%
Again, records set. A net profit up 111% as a result of strong iron ore prices and shareholders have been rewarded with a 335% dividend increase.
Not only is Mineral Resources benefiting from the iron ore price - it's also expanding volumes and there's a mining services business unit that’s doing well.
JB HiFi (JBH)
Gross yield 5.1%
A standout. Sales up 25%, NPAT up 86% from the prior dividend and an 82% increase on last year’s dividend. This record (to use the term again) dividend was only a 65% payout ratio, so there’s room to move.
Importantly JBH said January like-for-like sales were up 17% showing the retail sales momentum, which began last year, continues in 2021.
Super Retail Group (SUL)
Gross yield 3.9%
A business that’s benefitting greatly from our inability to travel overseas, with like-for-like sales in the first six weeks of 2021 increasing 30.5%. The BCF (Boating, Camping, Fishing) business has been a particularly strong performer for the group.
NPAT up 139% on last year and the dividend looks very sustainable at this time.
Gross yield 2.3%
NPAT up 26% on a 17% increase in sales. The final dividend of 88 cents is up 17%.
Like-for-like sales indicate a strong start to 2021, with Kmart particularly strong. This is significant as there have been concerns about Kmart’s performance over the past 12 months.
Bendigo and Adelaide Bank (BEN)
Gross yield 4.2%
A great result for income investors. The bank’s result was almost 30% above expectations with cash earnings of $220 million up 2% from the prior corresponding period and 156% on the second half of 2020. The strong dividend equates to a prudent 68% payout ratio.
Bad debts were only $20 million versus the $70 million that was expected by the market, while lending and deposit growth is market leading.
Commonwealth Bank (CBA)
Gross yield 2.5%
While CBA’s dividend was 25% lower than last year on cash profit that was down 20%, it was an increase of 53% on the August 2020 dividend.
It is important to note that they only paid out 67% of their earnings, but signalled they’d like to pay out 70-80% over the year, so we expect a strong second-half payout. The bank also signalled they’d like to use their franking credits for capital management, so we think an off-market buyback may be on the cards later this year which could be lucrative for retirees.
Gross yield 3.5%
Suncorp’s first-half profit came in at $509m, 11% above expectations. The dividend was the same as last year but 160% higher than what was delivered at the August dividend.
A great result for Suncorp was their net interest margin increased by 8 basis points. They also signalled excess capital of around $1 billion - the company is unlikely to pay that out until their business interruption claims are finalised, which could take some time.
Gross yield 4.9%
A surprise packet. Aurizon’s net profit came in around market expectations with EBIT flat on last year which is a good result considering the issues surrounding coal exports to China.
The company was able to increase efficiencies and it got a $40 million one-off benefit from prior payments that came through, enabling it to increase guidance and increase the dividend by 5% on last year. It is worth noting it is paying out 100% of profits, which may not be too sustainable long term.
Gross yield 3.6%
A former dividend heavyweight, Telstra delivered a sound result in the current market environment. Company profit was down 2% on last year, which was actually better than expected due to a lower tax rate.
It is worth noting the payout ratio is around 110% on underlying earnings, so some caution must be thrown to the wind with regards to future payouts. The company has however stated it will still pay 8 cents at the next dividend.
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Peter is a Senior Portfolio Manager and manages the Plato Australian Shares Income Fund. He is a founder of Plato and has 15 years investment experience. Peter received 1st Class Honours and a PhD from UNSW.