Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 425

Dividends, disruption and star performers in FY21 wrap

Despite straddling two of the most disrupted years in living memory, the FY21 reporting season was overall very positive.

In our analysis, around one-third of companies that we cover surprised us on the upside, around one-third delivered in line with expectation, and one-third were below expectation.

Our investment approach focuses on selecting companies with strong return on equity and on invested capital, and these companies delivered superior returns overall. We saw Earnings Per Share (EPS) grow by 26% over the previous corresponding period and expect a further 20% growth in the financial year ahead.

Put simply, investors in quality stocks were rewarded by strong performance through the reporting season. We were also pleased to see that overall, Australian companies have strong cashflow and balance sheets.

Bumper dividends welcome, but not permanent

With strong cashflows and robust balance sheets, Australian companies paid out approximately $38 billion in dividends, more than twice the amount of 12 months ago (according to Macquarie research report, 30 August 2021). While this was good news for investors, we don’t see it as a long-term trend. We prefer companies retain cash if they have attractive reinvestment opportunities, and if not, that cash should be returned to shareholders in the most tax-effective manner.

Miners benefited from high commodity prices and resisted the temptation to parlay that into questionable acquisitions, which they have done in the past. Banks raised provisions to cope with COVID disruption, but didn’t need to use the capital. Instead, they are now deploying it into share buybacks and dividends.

Economic conditions remain strong

Of course, COVID lockdowns are impacting our two largest states, NSW and Victoria. However, there are several factors that demonstrate underlying robustness in the economy. These include:

  • House price rises, and activity accelerating to higher levels
  • Credit growth accelerated to 4-5% in the reporting period, and is on track to hit 7-8% going forward
  • Iron ore prices still elevated although well down from recent highs
  • $20-25 billion in fiscal government support for the current lockdowns
  • Ongoing infrastructure spend driven by government, with many projects gathering pace now.

Inflation is a key risk, although at the moment, central banks are forecasting that price rises will be transitory. We also think that there will be sufficient productivity gains and only moderate wage growth to balance out inflationary forces. We expect central banks to be quite tolerant of inflation and slow to raise interest rates if it appears.

Australia is more than just banks and miners

The latest earnings announcement underlines the fact that Australia has a broad universe of quality companies to invest, across sectors as diverse as technology, healthcare, consumer staples and financials. We don’t dismiss the banks and large mining companies but we think there is a great menu of companies with a lot to offer investors, and it is upon us as active managers to find and invest in these opportunities.

Our portfolio features a number of companies that have:

We highlighted four companies we like in our February earnings season presentation, and these all proved to be standout performers in the subsequent six months.

  • Domino’s Pizza: FY21 NPAT +43%; Japan & Western Europe sales and store roll-out accelerating.
  • Wisetech Global: FY21 NPAT +101%; Progressing on its goal “to be the operating system for global logistics”.
  • ALS: FY21 NPAT +35%; Growing beyond its commodities testing business into life sciences.
  • Bluescope Steel: FY21 NPAT more than tripled; investing in its North American and Australian steel capabilities.

Another four strong performers we highlight are:

Steadfast Group – The nation’s largest network of insurance brokers, used mainly by small-to-medium businesses. The company is growing consistently and delivered return on equity of 14% in the reporting period. We like its approach to sustainable growth.

Cleanaway – This is a well-integrated business providing services all along the value chain of waste management, including waste collection, recycling and landfill. It is in the process of acquiring several Sydney landfill and transfer station assets from Suez. We believe this will be earnings accretive and helps to position the company for growth.

OZ Minerals – An independent miner with strong exposure to the growing copper market, which will be a core part of the global move to Electric Vehicles. The company has a number of existing, de-risked copper mines and potential to open a new one in WA, which we believe makes it well-placed for future growth.

IDP education – This international English language testing and student placement company is a world leader in the space. Even with the challenges of Australia’s closed borders, it has been able to grow the placement of students into the UK and experienced lower declines into Canada. While COVID has led to a short-term dip in earnings, our view is that IDP will continue to grow well in the long term.

We continue to emphasise Australia’s ability to generate quality companies to invest in. Overall, we are pleased with the performance of our portfolio and our outlook is positive in terms of growth and returns.

 

David Wilson is Deputy Head of Australian Equities, Growth at First Sentier Investors, a sponsor of Firstlinks. This article is intended for general information only. No fund or stock mentioned in this article constitutes an offer or inducement to enter into any investment activity.

For more articles and papers from First Sentier Investors, please click here.

 

  •   15 September 2021
  • 1
  •      
  •   

RELATED ARTICLES

Why August company reporting season was poor

It’s the large stocks driving fund misery

August 2018 reporting season: the final verdict

banner

Most viewed in recent weeks

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

Ray Dalio on 2025’s real story, Trump, and what’s next

The renowned investor says 2025’s real story wasn’t AI or US stocks but the shift away from American assets and a collapse in the value of money. And he outlines how to best position portfolios for what’s ahead.

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

10 fearless forecasts for 2026

The predictions include dividends will outstrip growth as a source of Australian equity returns, US market performance will be underwhelming, while US government bonds will beat gold.

10 things I learned about dementia and care homes from close range

My mother developed dementia before eventually dying in June last year. She was in three aged care homes before finding the right one. Here is what I learned along the way.

Latest Updates

Taxation

Is there a better way to reform the CGT discount?

The capital gains tax discount is under review, but debate should go beyond its size. Its original purpose, design flaws and distortions suggest Australia could adopt a better, more targeted approach.

Property

It's okay if house prices drop

The assumption that falling house prices are electorally fatal has shaped policy for decades. Evidence from upzoning suggests affordability can improve without reducing overall housing wealth.

Investment strategies

Investment bonds for intergenerational wealth transfer

Investment bonds can be a versatile and a tax-effective option for building wealth for longer-term investment goals. They can also be used as an estate planning tool, enabling the smooth transfer of wealth to younger generations.

Investment strategies

Why switching to income may make sense in 2026

Investors are jumpy as valuations continue to rise and income investing may provide a respite. In a challenging market for income investing AML offers their top picks.

Interviews

Retiring Schroders boss on lessons he’s learned, industry changes, and the market outlook

CEO Simon Doyle is retiring after 38 years in the finance industry. In an interview with James Gruber, he shares the three main lessons he’s learned, and where he sees opportunities and risks in markets today.

Investment strategies

How US midterm elections affect the markets

Investors may overlook the US midterms amid global events, but they could still impact markets. History shows markets react during midterm years, with increased volatility and lower returns. Will this year be any different?

Investing

Does increasing geopolitical risk lead to higher equity market returns?

Increasing geopolitical tensions has investors on edge but one study shows evidence of a war premium for equity markets.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.