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

Corporate earnings show resilience against volatility but risks remain

It’s the large stocks driving fund misery

banner

Most viewed in recent weeks

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Does your will qualify for the discretionary testamentary trust exemption?

Treasury has confirmed the exemption many families were hoping for. But buried in the fine print are two conditions that could leave some wills on the wrong side of the exemption, despite years of careful planning.

Ranking three common retirement strategies

The defining challenge of retirement isn't just about building wealth, it's about converting your lifetime savings into sustainable income. A holistic understanding of different strategies can improve long-term outcomes.

Are you making these SMSF mistakes?

After four decades advising investors, there are a few common mistakes I've seen SMSF investors make. From holding too much cash and chasing yield to overtrading and trusting tips. Are these errors costing you?

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Australia has saved $4.5 trillion for retirement. Here's what matters more

Most Australians approaching retirement can tell you the exact dollar value of their super account. But success depends on more than a sizeable balance. Here's four key questions to ask yourself at the start of the financial year. 

Latest Updates

Economy

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Latest from Morningstar

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

Taxation

Completing the reform of CGT: tax real losses like real gains

Recent CGT reforms tax real gains by indexing capital gains to inflation. However, the reform fails to index losses, leading to higher tax on assets that do not keep pace with inflation, creating inefficiencies in the tax system.

Investment strategies

Blockbuster AI debt issuance coming to a bond market near you

With Australia likely to attract a growing share of AI-related issuance, investors should prepare for increasing influence from AI funding demands, evolving credit fundamentals and changing valuation dynamics.

Investment strategies

Active managers: Bringing a gun to the gunfight

When data arrived, basketball abandoned the mid-range shot, Formula 1 reinvented the pit stop and chess embraced humans working with machines. Active managers confronting today's markets may learn from the same path.

Retirement

What Australian super funds can learn from the UK

Most people want answers to three retirement questions: What have I got? Is it enough? What can I do with it? A leading UK pension innovator shares his lessons on helping members better understand and prepare for retirement.

Investment strategies

What the market may be missing in FY27

We asked ten fund managers the same question following FY26. While their investment styles differ dramatically, their answers revealed several surprising areas of agreement about where markets may be heading next.

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.