Telstra CEO Andy Penn announcing the full year resultsPhoto Pat Scala , Melbourne , AFRThursday the 17th of August 2017 .Qantas is the star performer of the “mum and dad” stocks this profit reporting season with its declaration of its second-highest ever profit.
Its share price had soared to about $5.30 at the end of July from about $3.20 a year earlier. After its profit result of last week, the flying kangaroo’s share price jumped to more than $5.60.
Add the dividends and that’s a total return for Qantas shareholders of more than 73 per cent – far and away the best performing of the widely held stocks.
Other highlights from the reporting season from among the stocks favoured by small investors include another record profit for the Commonwealth Bank.
A low point was Telstra’s announcement that it would cut futures dividends for its more than one million shareholders by up to 30 per cent.
Craig James, the chief economist at CommSec, says while dividends remain in vogue it has been apparent for the last few reporting periods that there is a re-assessment by companies about just blindly paying a dividend at all costs.
James created the Mums and Dads Index in 1999 to reflect the stocks mostly widely held by small shareholders – including Telstra, CBA, Woolworths, Qantas, AMP, Tabcorp, Suncorp, IAG and Wesfarmers. Since the creation of the index, it has under-performed the broader market.
However, as these stocks generally pay higher dividends their returns have been less volatile.
n shares, including dividends, returned 6.6 per cent for the year to July 31, 2017 while a portfolio of the nine equally weighted stocks favoured by small investors returned 5.9 per cent.
That is a better relative performance than for the year to January 2017, when the market returned 11.6 per cent and the Mums and Dads Index produced a return of only 0.9 per cent.
Chris Batchelor, independent market commentator, says to get growth in their portfolios, small investors should be adding a bit of exposure to stocks outside of the household names.
“Many investors are attracted to these stocks because of the high levels of franked dividends, but ultimately it’s the combination of dividends and share price growth that determines an investor’s total return,” he says.
Batchelor says small investors typically have no or little exposure to resources, technology, infrastructure and real estate sectors, among others.
The score cardQantas
Result: For the year to June 30, 2017, profit was $852 million, down 17 per cent from 2016, when it received a windfall from the sale of its Sydney Airport domestic terminal.
Positives: It’s Qantas’ second-highest profit; beaten only by the previous year’s profit. Qantas continues to enjoy earnings growth from domestic flights and its loyalty business.
Negatives: Qantas’ international division reduced its profit margin on international routes, contributing to a 36 per cent fall in earnings before interest and tax to $327 million.
Key point: Discounting for international airfares continues to be a challenge for the airline’s international business
Dividend: Announced a $373 million on-market share buyback and declared a dividend of 7?? a share taking the total dividend for the year to 14??. Woolworths
Result: Woolworths reported a 3.6 per cent drop in underlying profit from continuing operations for the year to June 25 to $1.422 billion from $1.476 billion last year.
Positives: Total sales at Woolies and its retail offshoots grew 3.7 per cent to $55.5 billion over the year.
Negatives: Losses at Big W increased from $14.9 million in 2016 to $150 million, with total sales falling 5.8 per cent.
Key point: Same-store supermarket sales grew 3.6 per cent during the year, outpacing the sales growth of rival Coles.
Dividend: A final dividend of 50?? per share to take total dividend for the year to 84??, a 9.1 per cent increase on the prior year. Commonwealth bank
Result: ‘s biggest bank pulled off another full-year record profit of almost $10 billion, almost 5 per cent for the year to June 30 compared to the previous year.
Positives: The bank just keeps making record profits, with a consistently good performances across its divisions.
Negatives: Allegations have been made that ‘s biggest bank breached laws to combat money laundering. The banking regulator is to conduct a public inquiry into “organisational and cultural” issues at the bank.
Key point: The bank will look to sell its life insurance business in and New Zealand in a deal which could be worth up to $5 billion.
Dividend: A final dividend of $2.30 per share, giving a full-year dividend of $4.29. IAG
Result: Net profit after tax increased almost 50 per cent to $929 million, helped by stronger investment income, higher insurance prices and releases from reserves.
Positives: IAG has done well for its shareholders for the year to July 31, 2017 with its share price at about $5.70, about a dollar higher than a year ago.
Negatives: The company’s outlook for reported insurance profit margins left some analysts underwhelmed.
Key Point: It’s expecting claim costs to rise.
Dividend: IAG will pay a fully-franked final dividend of 20?? a share, taking its full-year dividend to 33?? a share. Suncorp
Result: Full-year cash profit of $1.075 billion, an increase of 3.6 per cent on the previous financial year.
Positives: Strong performance of its insurance arm.
Negatives: Despite the lift in profit, the result fell short of market expectations. Banking and wealth earnings were subdued.
Dividend: An increase in final dividend by 2?? to 40?? a share to takes full-year dividend 73??, up 7 per cent on last year. AMP
Result: A fall for six months to June 30 of about 15 per cent to $445 million, compared to the previous corresponding period.
Positives: Underlying profit was $533 million for the half year; almost 4 per cent higher than the earlier corresponding period’s $513 million.
Negatives: Some analysts questioned whether AMP could make better use of the capital released in the life insurance business rather than returning the capital to shareholders.
Key Point: Will complete a reinsurance program for its life insurance business by year-end that would release $1 billion in capital and protect it from spikes in claims.
Dividend: AMP will pay a 14.5?? a share dividend for the half-year, an increase on 14??. Telstra
Result: Full-year profit in the year to June fell by about a third to $3.9 billion. However, that was mainly due to a $1.8 billion windfall gain in the prior year from the sale of Chinese car web site Autohome.
Positives: Without the Autohome sale, comparable earnings were up 1.1 per cent at $3.87 billion.
Negatives: Telstra said it will cut future dividends by up to 30 per cent.
Key point: Telstra is challenged by stronger competition.
Dividend: Telstra will pay a final dividend of 15.5?? to take the full year dividend to 31??. Tabcorp
Profit: Tabcorp reported a full-year net loss of $20.8 million because of costs related to its proposed merger with Tatts, legal battles and expenses at its new British business.
Positives: Though a loss, the gaming company reported a 2 per cent lift in revenue to $2.23 billion for the 12 months to June 30.
Negatives: The gaming giant was hit by $199.7 million in costs, including, among others, costs for its acquisition of gaming tech firm Intecq and proposed takeover of Tatts.
Key point: The main worry is the uncertainty surrounding the proposed merger with Tatts.
Dividend: A final dividend of 12.5?? will be paid, taking its full-year distribution to 25??. Wesfarmers
Result: The conglomerate reported a net profit after tax for the 12 months to June 30 of $2.87 billion, up from $2.25 billion a year earlier, excluding impairments against Target and its coal assets in 2016.
Positives: Its industrials division did well, mostly as a result of higher coal prices. Kmart’s earnings grew 17.7 per cent to $553 million with a 7.5 per cent lift in sales.
Negatives: Coles earnings fell 13 per cent as it tripled it further discounted prices and improved customer service.
Key point: Target again ran into the red, reporting a $10 million loss.
Dividend: Final dividend $1.20, bringing the full-year dividend to $2.23, almost 20 per cent above the prior year.