Dividends lift: Payouts hit $29.4 billionEconomic and Financial market perspectives
Cash payouts: Since mid-February, ASX 200 companies have paid out around $4.5 billion in dividends to shareholders. But dividend payouts really start to ramp up in mid to late March. Overall, around $29.4 billion will be paid to shareholders over the February-June period, up from $26 billion in the August 2018 reporting season and up from the $22 billion in the February 2018 earnings season.
Dividends still in vogue: The majority of companies reporting half-year earnings results (83 per cent) chose to pay a dividend and 82 per cent of these companies lifted or maintained dividends.
Injection into the economy: Almost $23 billion will be paid out by listed companies to their shareholders in the next five weeks.
What does it all mean?
Dividends remain in vogue. In fact, despite finding it harder to lift profits, still 83 per cent of half-year reporting companies in the ASX 200 chose to pay out a dividend. But reflecting the tougher environment, the proportion of companies seeking to pay out dividends was down from the highs in the 2015 and 2016 financial years.
Of the ASX 200 companies reporting for the half-year to December, around 83 per cent of firms elected to pay a dividend, down from the long-term average of 86 per cent, and well down from the record levels of 91-92 per cent recorded in the 2015 and 2016 full-year results.
Of the 138 companies reporting full-year results, almost 93 per cent reported a profit, just down from the record 94.4 per cent recording a profit in the 2017 half-year results. Around half of companies lifted profits and a similar percentage lifted cash holdings. Aggregate cash holdings rose by 5 per cent over the year to $91.5 billion. Adding in the 31 companies reporting full-year earnings, cash stood at $120.9 billion.
Over the period from February to June, around $29.4 billion will be paid to shareholders as dividends, up from $26 billion in the August 2018 reporting season and up from the $22 billion in the February 2018 earnings season. So shareholders continue to be well rewarded.
Some shareholders will receive the dividends as cash and others will employ the proceeds through dividend reinvestment schemes. While the majority of the funds will be paid to domestic investors, other funds will go offshore to foreign investors. And while some of the dividends are paid to ordinary investors, otherpayments are paid to superannuation funds, thus with more limited short-term consequences for the economy.
While dividends flow at this time every year, the dollars potentially could lift spending. Certainly with wages growing at a slower pace than in the past, (around 2.0- 2.5 per cent annually) investors may be more inclined to spend rather than invest. 
The Profit Reporting Season
Regular readers would be aware that each six months CommSec undertakes a detailed review of the profit reporting season – the time when companies report half-year or annual results for the period to June or December. (A far smaller proportion of companies have a different reporting period, such as March or September).
To recap, Corporate Australia is not doing as well as a year ago. And that should hardly come as a surprise. Companies have had to deal with a raft of negative influences. These include the China-US trade war; Brexit (Brambles, Reliance Worldwide); global financial market volatility (Challenger); political factors and uncertainty (Healthscope, Challenger, CSL); falls in Australian home prices; and on-going soft wage growth and consumer attitudes (Coles, Wesfarmers, Woolworths). Even some companies highlighted weather influences including wet weather in Sydney (Coles, Suncorp, Steadfast, QBE and Transurban).
Certainly the tougher business environment has been reflected in surveys. Even the Reserve Bank Governor says that the economic environment is “less positive” than a year ago. Not, a ‘negative’ environment mind you, but “less positive”.
Companies are still making money. In fact 93 per cent of the companies reporting ‘interim’ results reported a statutory profit (net profit after tax). That is near the record high in the equivalent earnings season in February 2017. But only 49 per cent of companies lifted profits compared with a year ago.
Aggregate statutory earnings lifted by 15.3 per cent on a year ago, but once Wesfarmers and BHP are excluded, profits are down 5.8 per cent on the year. The percentage of companies that issued a dividend is at 6-year lows; expenses outpaced sales; and cash levels for all ASX 200 companies – half or full-year reporting companies – were up 5 per cent on a year ago.
Some of the themes of the season:
Share prices of companies were volatile on the day of their earnings announcement. But the spread of companies recording a lift in its share price almost completely matched those recording a share price fall. That is, ‘ups’ matched ‘downs’.
Costs or expenses continue to lift, as has been the case for the past year. Growth of cost of sales/expenses now exceeds that of sales/revenues. Higher wage and energy costs were specifically noted. A similar theme of ‘margin’ pressures was highlighted in the European reporting season.
Despite falls in home prices, housing construction and development companies didn’t report a marked impact on earnings results.
Of all companies reporting full-year earnings, almost 93 per cent reported a profit. Forty-nine per cent reported a lift in profit (long-term average 61.5 per cent). Of those reporting a profit, 52 per cent lifted profits and 48 per cent reported a decline.
Of all half-year reporting companies, 83 per cent issued a dividend and 17 per cent didn’t. Of those reporting a dividend, 58 per cent lifted the dividend, 17 per cent cut and 24 per cent left dividends unchanged.
Of all companies reporting half-year earnings, 51 per cent lifted cash holdings over the year and 49 per cent cut cash levels.
Cash holdings of both full-year and half-year reporting companies stood at $120.9 billion as at December 31, (half-year companies, up 5.0 per cent on a year ago to $91.5 billion). 
The Dividend Timeline
IRESS provides data on the dividends declared by companies, the number of shares on issue and the pay date of the dividends. So it is possible to derive a dividend timeline. The ASX 200 companies were assessed.
As always there are complications to the analysis such as where the shareholders are based, whether dividend reinvestment plans operate, special dividend payments and currency translation effects for foreign investors. But the aim is to get a broad idea of the timing and magnitude of dividend payouts.
CommSec estimates that around $29.4 billion will be paid to shareholders by ASX 200 companies from midFebruary to mid-June 2019. The key period for dividend payments is the five-week period beginning March 18. Over that five-week period, $22.8 billion will be paid out as dividends by listed companies: in the week endingMarch 22, dividends totalling $3.3 billion will be paid; in the week ending March 29, $9.5 billion will be paid out as dividends; in the week ending April 5 dividend payments totalling $2.9 billion will be made; in the week ending April 12 distributions total $4.0 billion; and in the week ending April 19 dividends of $3.1 billion will be paid. 
The importance of dividends
If you indexed the All Ordinaries index and the All Ordinaries Accumulation index at January 2004 it would show share prices (All Ords) up 91 per cent while total returns have risen by around 265 per cent. The differential (dividend growth) has especially widened from the low point for shares after the global financial crisis in February 2009. So dividends have taken on greater importance.
There are a few reasons for this. Investors have been more cautious about buying shares, despite the fact that Australian companies have been making money and strengthening balance sheets. So share prices have not fully captured the stronger fundamentals.
The economy has also continued to mature and the “potential” growth rate has eased from around 3.5 per cent to 2.75 per cent. Many of Australia’s biggest companies operate in mature industries. So while companies continue to generate good returns, growth options are more limited. Add in the fact that inflation has also slowed from around 2.5 per cent to around 1.5-2.0 per cent.
In recent years Australian companies have also had to compete with heady property markets to secure the affection of investors. With share prices seemingly constrained by a range of influences, that puts more onus on companies to offer attractive dividends or to support share prices with buybacks.
Until recently there has been some reluctance by companies to plough back cash into the business. And expansion, renewal, replacement or efficiency measures have boosted the funds that can be made available as dividends.
What are the implications for investors?
Investors have the usual choice over the next few weeks. Those investors who still elect to receive dividend payments direct to their bank accounts can choose to spend the extra proceeds, save the proceeds (leave it in the bank) or use the funds in combination with other savings and reinvest into shares or other investments.
For companies, retailers and financial firms, the dividends flowing through to shareholders clearly represent opportunities. The Reserve Bank will also monitor the trends in the next few weeks: if confidence lifts, an inflow of funds represents a potential spending boost.
Of the major bourses across the globe, Australia is amongst the largest payers of dividends. In part this reflects the maturity of Australia’s industry sectors. It also reflects the stability of the companies that dominate the ASX20 and ASX50 indexes. And it also reflects the ongoing growth of the Australian economy and corporate profitability.
Over the past couple of years many companies took the “safe option” of paying out dividends and buying back shares – in other words, keeping shareholders happy. But many companies are now opting for greater balance.
Adequate cash must be maintained to pay out dividends together with confidence on future profitability. But cash levels as well as modest borrowings are important for reinvestment in the business and applied to new opportunities – entering new markets or engaging in mergers and acquisitions.
Over the past year, costs or expenses have lifted. Aussie companies have done well to lift revenues, record profits and pay dividends in the current environment. And with competition increasingly becoming global, Aussie companies need to get the balance right in focusing on lifting revenues and restraining costs.
Shareholders increasingly realize that it is important to select companies with good potential for solid, sustainable growth in total returns – share price plus dividends. And that means paying attention to all aspects of the business.
Published by Craig James, Chief Economist, CommSec
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