Corporates conservative
(02 September 2010 – Australia) As a result of the uncertain economic and political climate companies are hoarding cash and adopting conservative dividend polices, resulting in corporate sector debt dropping to the lowest levels in 15 years, Macquarie’s researches said.
Research by Macquarie Securities after the 2010 annual profit reporting season indicates that the nominal amount of dividends paid, and dividend payout ratios, both dropped.
The research team has forecast that this trend will continue for the current financial year.
Tanya Branwhite, Macquarie’s head of Australian equity strategy, said that there are still companies, mostly in infrastructure and utilities, that are highly geared.
However, in most areas corporate gearing is at its lowest level since the mid-1990s, when the bank started compiling data, Ms Branwhite added.
In a group of 308 companies, of which about 250 paid dividends, there was A$38.75 billion in shareholder payments last year, down 2.9 percent.
The fallout from the financial crisis is illustrated by a 13 per cent cut in dividends in the 2008 financial year.
Ms Branwhite attributed the trend to an endemic lack of confidence in the business sector.
Just as it looked as though sentiment was starting to improve, the sovereign debt crisis happened, which again focused company boards on the behaviour of credit markets, because banks were unwilling to extend or refinance debt, Ms Branwhite said.
Ms Branwhite continued saying that some sectors of the economy also continued to struggle, and the timing of the resource super-profits tax was poor, because corporate Australia started to wonder if they were going to get hit as well.
On top of that, there is the political uncertainty from the election result, Ms Branwhite highlighted.
All of that means that people are focusing on the negative rather than the positive, and it's encouraging company boards to be conservative, Ms Branwhite noted.
The research team has forecast that this trend will continue for the current financial year.
Tanya Branwhite, Macquarie’s head of Australian equity strategy, said that there are still companies, mostly in infrastructure and utilities, that are highly geared.
However, in most areas corporate gearing is at its lowest level since the mid-1990s, when the bank started compiling data, Ms Branwhite added.
In a group of 308 companies, of which about 250 paid dividends, there was A$38.75 billion in shareholder payments last year, down 2.9 percent.
The fallout from the financial crisis is illustrated by a 13 per cent cut in dividends in the 2008 financial year.
Ms Branwhite attributed the trend to an endemic lack of confidence in the business sector.
Just as it looked as though sentiment was starting to improve, the sovereign debt crisis happened, which again focused company boards on the behaviour of credit markets, because banks were unwilling to extend or refinance debt, Ms Branwhite said.
Ms Branwhite continued saying that some sectors of the economy also continued to struggle, and the timing of the resource super-profits tax was poor, because corporate Australia started to wonder if they were going to get hit as well.
On top of that, there is the political uncertainty from the election result, Ms Branwhite highlighted.
All of that means that people are focusing on the negative rather than the positive, and it's encouraging company boards to be conservative, Ms Branwhite noted.
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