After the horror show of last year’s reporting season, this year’s is a feel good story with a roll call of Australia’s biggest corporate names reporting bumper profits – and in some cases bumper dividends.
The virtues of holding dividend stocks are too often ignored.
Stocks like Afterpay get the big headlines because of the mouth watering capital appreciation, but they pay no dividends and the company made a $156 million loss. If you’re in a stock like Afterpay, you are along for the capital growth ride and maybe a juicy takeover premium at the end.
The general rule is that, for the long term, you are probably better off investing in stocks which might not deliver such stellar capital growth but deliver reliable and sometimes generous dividends.
And that is certainly what has happened this year, with ASX listed stocks declaring a total of $86.6 billion in cash dividends over the reporting season, the equivalent of close to 5% of our national gross domestic product.
This week’s big news was the $14 billion profit announced by Twiggy Forrest’s Fortescue Metals as it rode high on the iron ore boom. Along with the profit, the company doubled its final dividend to $2.11 per share, and the most obvious beneficiary was Forrest himself who pocketed around $2.4 billion for his shareholding.
Fortescue shares are at around $21 so if you had 1000 shares, not only would they be worth $21,000 but you would be getting a dividend payment of $2110.
So, does that mean you should buy Fortescue today? In making your decision, look at the iron ore price, which is falling rapidly from record highs and wonder if 2021 might be Fortescue’s high water mark, for a while at least.
The big banks also routinely deliver solid dividends, and did not disappoint. The CBA, for example, more doubled its dividend to shareholders to $2 per share, a good reward for those who have hung in with the bank over the bad times.
Are CBA shares a good buy going forward? There is a lot of evidence to suggest that the company is back on track and well positioned to take advantage of the post-Covid economic bounce. On the downside, the bank is highly exposed to the home mortgage market, so if you worry that the property boom will end in tears that may sway your thinking.
Another miner to deliver in the dividend department was Rio Tinto which paid a whopping $7.60 in dividends with the addition of a special payment, perhaps to placate shareholders who stuck with the company despite its reputational crisis. If you think that the Rio dividend sounds more than Fortescue remember that Rio shares are at around $113 against $21 for Fortescue.
Does that mean you should buy Rio shares? On the plus side is the new management, and being more diversified is less exposed to a falling iron ore price. So if you think the global economy is going to recover well in 2022, perhaps Rio will participate in that a little more than Fortescue, which is reliant on one commodity only.
Rio’s great rival BHP is in the pretty much the same boat with its 2021 performance, declaring a record final dividend of US$3.01 per share, an increase of 151%.
As with some of these other resources stocks, however, there’s a feeling in the market that they may be at the top of their cycle, so that’s something to consider if you are pondering an investment. BHP also recently announced a merger with oil and gas producer Woodside, so there’s the outlook for that market to ponder.
In the retail sector, one company which has survived if not thrived during the pandemic is the Super Retail Group, which owns brands such as Rebel Sport, BCF and Supercheap Auto.
The company supercharged its dividend this year by 450%, with this month’s interim dividend taking the full year return to 88 cents.
Some consider the group’s shares as undervalued compared to the wider market, so perhaps the company might be worth putting on your investment shopping list.
The future, of course, depends on the economic conditions for 2022 and with lockdowns continuing around the country no-one – not even Treasurer Josh Frydenberg – can really make a confident call about what might happen.
Investing is several parts research, several parts gut feeling. How you balance that defines your investment style.