The Australian sharemarket is setting new records almost daily and we are in the midst of what is shaping as a bumper reporting season by some of the market’s largest companies.
This is the time when shareholders can reap some of the rewards as they enjoy a flow of dividends and, in some cases, share buybacks as companies look to manage their own bank balances.
Buybacks are positive for shareholders because the company will generally purchase the shares at more than the market.
And for those looking for extra profits, shares often spike higher after a good result or optimistic guidance, providing a window of opportunity for those wanting to sell out at a profit.
Leading the pack, as it often does, is the Commonwealth Bank of Australia, a company valued at almost $140 billion and the world’s 45th largest bank in terms of assets under management.
The CBA is a favourite of investors seeking a dividend stream, and chief executive Matt Comyn and his team did not disappoint this week.
Investors will be cheering a 20% increase in annual profits to $8.65 billion, but they will be even happier about the final dividend, which at $2 is more than double the 98 cents per share investors received last year as companies battened down the hatches to survive the pandemic.
The good news did not stop there, with the CBA also announcing a $6 billion buyback, offering shareholders a further attractive cash sweetener. Buybacks often provide a little further uplift to a company’s share price, adding to the positive news.
The market liked the CBA result so much that the shares, which closed at $106.56 on Tuesday, opened at $108.61 on the result news.
Which begs the question, are CBA shares a good buy right now, after all the good news has been announced? You might feel you have missed the boat by buying in now, but the history of the stock shows that shareholders who bought in at any point have generally been well rewarded.
If you buy in now, you could be enjoying the windfall that existing CBA shareholders are enjoying today.
CBA is not the only major bank to reward shareholders with a buyback recently, coming after similar announcements from ANZ and NAB. Smaller bank Suncorp did the same earlier in the month.
Growth stocks like Afterpay might be the market darlings, but the banks consistently deliver for shareholders and that is why so many investors, and in particular retirees, love having them in their portfolios.
Another stock in this category is Rio Tinto, which has had a controversial year with criticism of its destruction of the Juukan caves in Western Australia.
Shareholders who hung in were recently rewarded with a special dividend which took the total dividend to a record $7.62 per share, well above the expectations of many analysts.
Hefty dividends are also expected from the other big miners Fortescue and BHP, both of which are awash with cash due to the record iron ore price.
With predictions of an economic slowdown in China, our biggest market for iron ore, there is a suspicion that the party may be over for iron ore.
Best proceed with caution if you are tempted by these mining stocks going forward.
Elsewhere on the market, analysts are expecting a strong reporting season with increased dividends from many companies.
At JPMorgan, the analysts are forecasting that profits across the market will beat expectations by 9%, while those at Macquarie are even more bullish at 28%.
At Citi, the market analysts are forecasting that the banking, mining, and healthcare sectors to provide some positive surprises, while they see “more potential for downside” in the technology sector.
The other point of interest in the reporting season is earnings guidance from companies, and here the outlook is a little mixed, partly due to uncertainty over the resurgence of the pandemic.
JPMorgan’s head of research Jason Steed told the Australian newspaper recently that lockdowns were “once more casting a long shadow of uncertainty over the outlook for corporate Australia.”
“Qualitative outlook statements are bound to be highly circumspect,” he said.
In the meantime, however, investors can expect the good news to keep flowing in the current reporting season, which runs until the end of the month.
After that, it might be time to re-evaluate portfolios and do some rebalancing in advance of what could be a rocky ride ahead.
The word is that “Covid losers” are set to become winners. Something to ponder as you contemplate which stocks to buy as you set yourself up for the year ahead.