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

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Lithium's rally is real this time – but no-one trusts it

The lithium rally mirrors the early-2010s tech stock surge, with demand set to double by 2030. Supply has been slow to respond, creating a market deficit for future tech like humanoid robotics and solid-state batteries.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

How inflation is quietly moving the goalposts on retirement

Inflation doesn’t just raise today’s bills - it quietly increases the amount needed to retire, while simultaneously making it harder to save. Three steps to take before June 30th to improve retirement outcomes.

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Latest Updates

SMSF strategies

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

Planning

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

Taxation

Income tax and bracket creep

Examining how five "tax cuts" stack up against bracket creep. Why offsets and incremental changes may do little to ease rising average tax burdens, compared to structural reform through indexation over time.  

Exchange traded products

The limits of a quality investing approach in Australia

Quality strategies shine globally, but Australia's concentrated market tells a different story. Limited diversification and sector dominance can constrain the defensive outcomes investors have seen in broader markets.

Investment strategies

Balancing opportunity and complexity

As private markets expand, investors face a growing mix of structures, a stabilising private equity cycle and uneven AI disruption. Fresh questions are being raised about where the real opportunities now sit.

Investment strategies

Why strong returns matter as much as generosity

As EOFY approaches, structured giving offers a tax-effective way to support charities, while allowing donations to grow over time and play a longer-term role in family wealth and legacy planning outcomes.

Investment strategies

The most important investment decision you’ll ever make

Stock picking often gets the spotlight, but research shows asset allocation explains the vast majority of long‑term returns. Understanding your mix of growth and defensive assets is the real key to investment success.

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.