Profiting from a share of the Covid recovery

IN THE past two weeks, Australia’s biggest listed companies representing the mining, financial services and telecommunications sectors promised to shower shareholders with more than $25bn in dividends, special dividends and share buybacks.

To put that 14-day cash splash into some context, it is equivalent to almost three years of planned infrastructure investment pledged by the federal government in the recent budget, easily beats the $18bn announced to overhaul the nation’s scandal-ridden aged care system, and is about half the initial $56bn in JobKeeper payments that saved millions of jobs last year.

Australia’s corporate balance sheets have never been stronger.

Rio Tinto led the pack in late July when it posted a jawdropping total dividend payout of $US9.1bn ($A12.37bn) driven by record high iron ore prices. It was followed over the next two weeks by a $6bn share buyback from Commonwealth Bank (as well as $3bn in dividends), a $250m buyback from Suncorp and this week a $1.35bn buyback from Telstra that was complemented by more than $1.5bn dollars in declared dividends.

Then there was a trail of small and mid-cap stocks such as Nick Scali and Baby Bunting that ramped up their final dividends by 11 per cent and 29 per cent respectively.

The next two weeks will feature some of the market’s biggest companies such as CSL, Wesfarmers and Woolworths along with other industrials and miners that are tipped to keep the dividends and buyback party going.

The clues to the upbeat start to reporting season driven by robust corporate balance sheets were first evident in the pre-reporting season.

Upgrades were concentrated in the materials and general industrials, namely James Hardie, Sims, and Ansell, and REITs such as Charter Hall, Dexus and Goodman Group.

UBS analyst George Tharenou said other key themes that pointed to the strength of corporate Australia included low implied volatility suggesting markets expect strong results, but with little risk priced-in for cyclicals, REITs, defensives and banks.

“After ASX100 earnings per share collapsed by 35 per cent year on year in fiscal 2020, consensus expects fiscal 2021 rebounded by 49 per cent – surpassing 2019 levels – and will jump by another 9 per cent in fiscal 2022,” he said in a reporting season preview note to clients of the investment bank. “This is driven by elevated commodity prices, as well as booming housing, and a fiscal-fuelled rebound in consumption.”

UBS said 2021 earnings per share expectations are led by resources (up 98 per cent) and financials (up 48 per cent).