by Chris Becker
So what’s pushing the ASX200 up to new highs even as global markets fritter as the Trump trade war heats up? The ASX200 closed at 6300 points exactly on Friday, the highest level in nearly 10 years:
Earnings per share and the price earnings ratio remain relatively flat historically:
But the nominal high is far outweighed by the accumulated high – that is, including dividends – showing the ASX200 is on par with the well overbought S&P500:
And therein lies the real answer to why Australian stocks are being bid higher – our love affair with dividends. Interestingly, the pressured banks are not the main reason behind the new impetus, but rather the big two iron ore players.
From Bloomberg:
Five times as many companies are likely to boost dividends from a year earlier than cut among the top 100 stocks reporting in August, according to data compiled by Bloomberg. More than a quarter of the expected payments are coming from two of the world’s largest miners, the data show.
A lift in commodity prices is expected to help Australia’s largest companies declare about A$27 billion ($19.9 billion) in dividends, 2.7 percent higher than a year ago, according to the data. BHP Billiton Ltd. and Rio Tinto Ltd. are seen accounting for about A$6.7 billion, the largest August payout since 2015 as high prices and asset sales cut debt and free up cash.Resources stocks are benefiting from cost cuts over the past two years, said Don Hamson, Managing Director of Plato Asset Management, a A$4.9 billion fund that chases dividends. “Higher prices just flow right through and they’re in a position to return more to shareholders.”Still, not all iron ore stocks are so positive. While BHP and Rio are seen lifting payouts, Fortescue Metals Group Ltd. is expected to cut its dividend by more than a quarter amid a global discount for the lower grade ore it mines.
Its the heavy weight industrials that are clawing back, a clear sign that the domestic economy is not travelling as well. Telstra’s famous steady dividend is to be cut again, while Woolworths is reducing its own payout from 50c to 40c per share.
What about the banks? Only Commonwealth Bank will be actually reporting next month, while the other three divisions of Megabank are giving updates, with analysts putting laser like focus on bad debts provisions and capital management. There maybe some concrete eveidence that the inexorable rise in bank dividend payouts may pause or even reverse. It could be that the Royal Commission might be the catalyst to wean Australian investors off juicy bank dividends.
But relying on miners for those juicy dividend cheques – and the even juicier franking credits – for regular income is not exactly a robust strategy either.