A global fund manager is forecasting a recovery in dividend distributions from companies listed on the Australian Securities Exchange during the coming August reporting season.
Martin Currie Australia made the prediction on the back of recognising listed companies are in a good financial position as a result of the federal government’s recent stimulus measures, which have sparked a rise in business and consumer confidence and economic activity.
“Many companies have high franking balances and are holding high levels of cash on their balance sheets. Like consumers, companies were very conservative in 2020, hoarding cash against the economic uncertainty and paying down debt. They now have more free cash flow available to pay dividends than a year ago,” Martin Currie Australia portfolio manager Will Baylis said.
Baylis pointed out the banks are also in a position to make significant dividend payments.
“Banks are also releasing their high levels of bad debt provisions, given that COVID-19 economic modelling was based on worse expectations than happened in the real economy. We are also starting to see more optimism in the outlook statements from company management and a restart in capex spend,” he noted.
“This all bodes well for rising earnings and dividends at the August 2021 results and we see capital management activities contributing to the income growth available to investors, particularly those with low or zero tax rates, such as retirees and super funds.”
In addition to his optimism concerning dividend payouts, Baylis said investors can expect a rise in on-market and off-market share buyback activity.
“Companies can use their excess cash and debt to reduce the number of shares available by buying their own shares from the open market, particularly if they believe that the market is undervaluing the company’s shares,” he said.
“This returns wealth to shareholders by increasing the ownership stake of the remaining stakeholders and can improve financial ratios, such as earnings per share and dividend per share.”
According to Baylis, companies such as Boral already began their buyback activity in April.''