Equity investors had billions of reasons to be happy this week as this reporting season's dividend and share buyback deluge continued unabated.
But the corporate benevolence reignited debate about whether shareholder lollies are the best use of company funds - or whether corporate Australia needs to invest more to pick up the slack left as the mining investment boom tails out.
Insurer AMP on Thursday became the latest stockmarket heavyweight to unveil a higher payout, offering investors a 9 per cent increase in the interim dividend, to 12.4¢ a share.
Earlier in the week, retail-to-mining conglomerate Wesfarmers was a big hit with a $1-a-share special payout on top of its $1.05-a-share full-franked dividend and a 10¢ centenary payout. All this added up to $3.3 billion.
By midweek about $15.5 billion in cash had already fallen to shareholders, up from $13.6 billion the same time last year, according to CIMB. Telstra had done its bit with a $1 billion share buyback and increased dividend, while Commonwealth Bank of Australia handed back about $3.5 billion in its second-half dividend, for a total full-year payout of $6.5 billion. This equates to a payout ratio of a whopping 75 per cent.
On Wednesday, Reserve Bank of Australia governor Glenn Stevens toned down celebrations, suggesting that the billions of dollars returned to shareholders as dividends or equity buybacks might be better deployed in fixed assets that drive growth and absorb labour.
"The thing that is most needed now is something that monetary policy cannot directly cause," Mr Stevens told the House of Representatives Economic Committee in Brisbane.
"We need more of the sort of so-called 'animal spirit', or confidence if you like, that is needed to support not just a repricing of the existing stock of assets, but the investment that adds to that stock of physical assets."
His comments reflected concerns about the limits of monetary policy in stimulating business activity.
UBS Wealth Management's head of investment strategy David Sokulsky calculates that the average dividend ratio of Australian corporations is at 69 per cent of net profits, which is an all-time high except for a short spike in 2009.
On another measure, Goldman Sachs equity strategist Matthew Ross says the ratio at the average industrial company is about 50 per cent of free cash flow, which is earnings before interest and tax, plus depreciation and amortisation and less changes in working capital. This compares with about 30 per cent in the decade before the financial crisis, when the same companies re-invested about 70 per cent of free cash flow into the business.
So why give away money when you can invest it or spend it on new capital equipment, innovation, or skilled workers? The answer, according to most experts, is that the focus since the GFC has been cutting costs to brace for the long slow road to global recovery. At the same time, record low interest rates means fixed-income investment is unattractive to companies and their shareholders.
Instead, chief executives see benefit in keeping shareholders on-side with plump dividends and premium-paying buybacks. This keeps market values high and helps project a picture of corporate health. The share performance this year of Telstra and, more recently of CSL - both generous to investors - are cases in point.
On the other side of the equation, Australia's ageing population means today's equity investor is increasingly likely to be a retiree or semi-retiree relying on dividends for income, much as they might have done before with bond coupons or bank term deposits.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy