We are well into the Australian reporting season and, if the previous three weeks are a guide, investors’ infatuation with dividends will continue its rollicking time.

About two-thirds of the companies listed on the ASX 200 have now reported. UBS Capital offers a note of caution about a swag of large industrial companies now trading at some fairly lofty prices. “Positive reactions to dividends and other capital management appear to have been a key driver”, UBS has warned. “We are becoming increasingly concerned that the focus on income is becoming somewhat myopic.”

Take Wesfarmers as an example. It has led the party with a $1.1 billion cocktail for its shareholders – a $1.90 per share dividend was spiced up with another special 10 cent “Centenary Dividend” and, on top of that, there was another $1.00 per share special distribution associated with share consolidation. Not surprisingly, Wesfarmers’ share price has jumped about 4%. Analysts now have Wesfarmers trading on a fairly rich multiple of 21 x forward earnings.

The same can be said about Suncorp. It has rewarded its shareholders with a 30 cents per share special dividend, despite its revenue growing only a modest 1%, whilst Telstra increased its final dividend for the first time in seven years and announced a billion dollar share buyback.

So far many of the big broking firms have indicated the reporting season so far has been characterised by weak revenue growth and further cost-cutting which has been the key to stocks delivering a positive earnings surprise.

Many of the technical experts now think we need a correction to bring us back to fair value but those historically low interest rates are distorting the normal way markets play.

September is almost upon us and this is normally where the trouble begins? History shows the key US stock market indexes usually perform the poorest in September. Since 1950, the month has seen an average decline of 1.1% for the DOW and a 0.0% decline for the S&P 500. The S&P 500 has made record highs 28 times this year. Earnings have helped our market go higher – unquestionably. We’re up to 0.4% since mid-August and usually if the US market keeps rising, we’re set to go along for the ride.

Both the US Central Bank and the RBA in Australia appear to be leaving rates on hold for the future. So, considering rates will be on hold this will help our “companies” earnings going forward. Other factors that may help our economy and our share market move higher over the next 12 months are as follows:

–      Australia has created 109,000 full-time jobs since January and that has to help consumer spending going forward.

–      Lending in Australia hit a 6½ year high in June, rising 7.6%.

–      Inflation adjusted retail sales grew by 3.1% in 2013/14 – the best annual growth in 6 years.

–      All be it slowly, consumer confidence continues to rise from the post-budget slump.

–      The Aussie stock market has risen 17%.

AMP’s Shane Oliver has done the numbers on our reporting season and concludes “The bottom line is that the June half earnings results are nowhere near as bad as many feared.” Oliver believes “Our year-end target for the S&P ASX 200 remains 5,800”, which keeps us all optimistic.

In his bi-annual testimony to the House of Representative Economics Committee, RBA Governor Glenn Stevens, said the economy is okay but not as good as he’d like – so it looks like the 2.50% cash rate will hold well into the New Year!

Our market 5,800 by Christmas? Let’s wait and see!

 

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David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus

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