During August (which is when Australian companies report their profit earnings), the results have revealed, on average, solid health and this has helped support the local economy.
Almost 140 of Australia’s biggest companies reported full year results during August, and all but 16 of them have recorded a profit.
Take out BHP Billiton and average profits are up by around 7 per cent compared with a year earlier. The past year has been challenging but that is nothing new.
Australian companies have been living with the new realities of ‘disruption’ from technology and globalisation, increased competition for market share, and low inflation for a few years now.
It is clear that companies have had to work hard in lifting revenues and they continue to achieve success in restraining costs. Low wage growth and weaker input costs such as energy assisted companies in boosting bottom-line profits. Average cash levels haven’t moved that much from the last reporting period in December.
Therefore, we conclude there has been no material change to dividend policy from this review as companies remain generally supportive in paying out dividends.
Another key point is that Australian companies continue to respond positively to the challenges.
Best performers
Probably the best performing sector in 2015/16 was Real Estate Investment Trusts – REITs or property trusts. The fundamental assets such as shops, industrial premises and offices have remained in firm demand with investors increasingly on the look-out for higher yields where cash rates have fallen.
Other industry sectors that experienced good earnings results included health care, packaged food, broadcasting, asset management and casinos and gaming. Companies linked to or dependent on home building and purchase also did well.
In summary, companies are making profits, cash levels remain high as prudent, and remain very engaged to pay dividends to shareholders.
Lantern Advisory recommendations
Our philosophy is to buy good companies with solid fundamentals and earnings outlook at the right price. Companies that have a healthy balance sheet and US dollar facing are of interest to us.
Avoid the news headlines and seek advice from an expert in this environment - investing is as much about managing risk as it is return.
Data source: CBA Research.
