Dividends and Profit

Higher dividends and more share buybacks suggest the market environment is not as dire as some chief executives would have you believe - though it is still not ideal, writes David Potts.

In fact, analysts are predicting earnings-a-share will grow faster this financial year than in 2010-11. That's right. For all the financial gloom and market volatility, they're saying things will get better, not worse. But then, they can always lower their estimates and probably will.
Although profits of the top 200 might have soared 32 per cent, take out BHP Billiton and they were up just 9.3 per cent, according to the chief economist at CommSec, Craig James.
Then again, as he points out, take out two of the worst performers, BlueScope Steel and Leighton, and profits would have been up 17.3 per cent.  ''Where do you stop in that process?'' he asks.

Perhaps it's better to start with BHP Billiton, indisputably a stunning result. Its profit jumped more than 80 per cent to just over $22 billion. Despite having another $12 billion of cash to play around with, it proved the exception to the rule of cashed-up companies in not buying back some of its shares, though it did last year.
Yes, it had challenges, too, but at least ''we remain positive on the longer-term outlook for the global economy'', BHP told the market.
The wonder is its share price, hovering under $40, is well off its peak despite the greatest mineral boom Australia has ever known.
It is trading at just 10 times its earnings, which is about 40 per cent below its norm of the past 10 years.
And did I mention the record profit, dividend, and fewer shares on issue?
''I don't normally advocate buying a stock and holding it forever but this could be one to save for the grandchild,'' the CEO of Lincoln Indicators, Elio d'Amato, says.

CMC predicts the market will ''range trade'' at about 4500 for the next year. It was 4243 on Friday.
In any case, bit by bit analysts have been revising down their forecasts of earnings a share for 2011-12. The trouble is, they look at specific companies and so can miss the big picture, as the GFC showed.
That big picture, unfortunately, isn't looking so good for profits.
A good indicator is the banks. The only one to report was the Commonwealth, which suggested slowing growth and, incidentally, was exceptionally generous with its dividend.
Thanks to the fact that their share prices have been marked down, bank stocks bought today are returning almost double digits from dividends alone after the 30 per cent tax credit from franking.
You can just about hang your hat on this since the banks are especially loath to cut a dividend. The CBA wouldn't be lifting its this year, and the others are bound to follow suit, if it thought there was even the slightest possibility of that.