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.

Register here to receive the Firstlinks weekly newsletter for free

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.



Why August company reporting season was poor

It’s the large stocks driving fund misery

August 2018 reporting season: the final verdict


Most viewed in recent weeks

10 reasons wealthy homeowners shouldn't receive welfare

The RBA Governor says rising house prices are due to "the design of our taxation and social security systems". The OECD says "the prolonged boom in house prices has inflated the wealth of many pensioners without impacting their pension eligibility." What's your view?

Three all-time best tables for every adviser and investor

It's a remarkable statistic. In any year since 1875, if you had invested in the Australian stock index, turned away and come back eight years later, your average return would be 120% with no negative periods.

The looming excess of housing and why prices will fall

Never stand between Australian households and an uncapped government programme with $3 billion in ‘free money’ to build or renovate their homes. But excess supply is coming with an absence of net migration.

Five stocks that have worked well in our portfolios

Picking macro trends is difficult. What may seem logical and compelling one minute may completely change a few months later. There are better rewards from focussing on identifying the best companies at good prices.

Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Let's make this clear again ... franking credits are fair

Critics of franking credits are missing the main point. The taxable income of shareholders/taxpayers must also include the company tax previously paid to the ATO before the dividend was distributed. It is fair.

Latest Updates

Investment strategies

Joe Hockey on the big investment influences on Australia

Former Treasurer Joe Hockey became Australia's Ambassador to the US and he now runs an office in Washington, giving him a unique perspective on geopolitical issues. They have never been so important for investors.

Investment strategies

The tipping point for investing in decarbonisation

Throughout time, transformative technology has changed the course of human history, but it is easy to be lulled into believing new technology will also transform investment returns. Where's the tipping point?

Exchange traded products

The options to gain equity exposure with less risk

Equity investing pays off over long terms but comes with risks in the short term that many people cannot tolerate, especially retirees preserving capital. There are ways to invest in stocks with little downside.

Exchange traded products

8 ways LIC bonus options can benefit investors

Bonus options issued by Listed Investment Companies (LICs) deliver many advantages but there is a potential dilutionary impact if options are exercised well below the share price. This must be factored in.


Survey responses on pension eligibility for wealthy homeowners

The survey drew a fantastic 2,000 responses with over 1,000 comments and polar opposite views on what is good policy. Do most people believe the home should be in the age pension asset test, and what do they say?

Investment strategies

Three demographic themes shaping investments for the future

Focussing on companies that will benefit from slow moving, long duration and highly predictable demographic trends can help investors predict future opportunities. Three main themes stand out.

Fixed interest

It's not high return/risk equities versus low return/risk bonds

High-yield bonds carry more risk than investment grade but they offer higher income returns. An allocation to high-yield bonds in a portfolio - alongside equities and other bonds – is worth considering.



© 2021 Morningstar, Inc. All rights reserved.

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. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). 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.

Website Development by Master Publisher.