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A Closer Look at the Cut to Payout
- In our post-reporting season note, we highlighted how payout ratios were cut in FY17 but guided to rebound in FY18. The additional capital from some of the cut to payout ratios was used to protect market share and margins, while some were retained because of industry-wide structural pressures. We classified most of the capex, at least partially funded by the payout cut, as being “defensive” – spending necessary to protect margins; rather than “offensive” – used to grow future earnings.
- Australia provides more investor return on capital via dividends than most advanced markets and the downward pressure on payout ratios revealed during reporting season is a concern. Indeed, after the reporting season reset, analysts expect payout ratios to be lowered further in Consumer Discretionary, Energy, Industrials, Materials, Telecommunications and Utilities in FY18. However, a rebound higher in that year is expected in Consumer Staples, Financials, Healthcare and Information Technology
- Stocks with more stable payout ratios generally trade on lower dividend yields than those that don’t, meaning stocks with better longer-term payout stability are rewarded. Payout stability in the sectors where the dividend is an important part of investor return is key. These sectors include Real Estate, Financials Telecommunications, and Infrastructure.
- In a market with little top-line revenue growth and a mature cost-cutting cycle, buy dividend stability. AVN, AUB, CBA, SCG and PTM all have good longer-term payout ratio stability.
- Stocks that have a poor track record in payout stability in the key dividend-paying sectors include SKI, BOQ, SYD, EPW, ABA, IAG, LEP, APA and CHC.
Provider
Macro Strategy Advisors Pty Ltd
About us:
- The business is a Proprietary Limited Australian company that is owned and fully operated by Shane Lee from a small office in Sydney’s CBD.
- Shane worked for 17 years in Sydney-based senior research roles (economist, equity strategist and bond strategist) in global and regional investment banks and a domestic commercial bank prior to starting Macro Strategy Advisors. These roles straddled the asset classes making him uniquely positioned to advise multi-asset investors. He worked for the Reserve Bank of Australia (RBA) for 3 years as a housing, commercial property and equity market analyst and a liquidity forecasting specialist. He worked as a structural engineer in Queensland for 10 years prior to his career at the RBA.
Aim of our business:
- To partner with our clients in their aim to maximise returns. We provide timely, independent and thought-provoking research on thematic macro issues that are impacting or could impact financial markets. We aim to produce research that prompts our clients to question their assumptions.
Services:
- A fortnightly research note.
- Regular presentations and data support delivered by understanding our clients interests and investment process.
- We also in work in confidence to investigate, analyse and report on issues at our clients direction. This work is done on a project-by-project basis.
- As an Australian based business, the main focus is analysing how domestic and global issues impact Australian investors. However, our global and domestic insights are also valued by our offshore clients.
Our Edge:
- Our low cost base relative to our competitors allows us to provide a quality product at a reasonable cost.
- We are fully independent and don’t support a banking function or any third party. We have no interests other than providing our clients with the best possible research.
- Our focus is not point forecasting, but providing rigorous analysis and insight. We don’t routinely focus on the top or bottom 10% of likely outcomes to create a headline.
- Shane’s background in engineering has provided clients with unique insights into global infrastructure and domestic housing issues.
Shane Lee
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