Marcus Bogdan, Portfolio Manager of the Switzer Dividend Growth Fund (Quoted Managed Fund) recently spoke to Peter Switzer on Switzer TV to discuss the stocks in the portfolio that have reported and what that means to dividends.
Watch the full interview here:
Peter Switzer (PS): Well, it is reporting season and Marcus Bogdan is the Fund Manager of the Switzer Dividend Growth Fund. Some of these stocks have actually reported, so let’s just see what he’s found. Marcus, thanks for joining us.
Marcus Bogdan (MB): Thanks Peter, good to be here.
PS: I want you to just kick off, while I run through some of the companies that are in your portfolio and what’s your take on them, and what’s the dividend news.
MB: The dividend news is very good collectively of the companies that have reported so far in the portfolio, dividends are up over 30%. The reporting season started very strongly, with CBA and Sun Corp delivering a very strong uplift in dividends. There are also good performances in the telecommunication space, particularly, Telstra, and Spark. Today, it’s been consumer staples, Endeavor and Woolworths reporting strong results, and Woolworths reported a good uplift there in dividends as well.
PS: There’s also a buyback mentioned as well, which surprised a few people. Will your fund benefit from a buyback?
MB: The buyback from Woolworths was expected because it’s the proceeds from the Endeavor, the merger. That will certainly help, in terms of reducing share count, and then ultimately that will be attractive to earnings per share going forward. It’s absolutely a net positive for investors.
PS: Going into reporting season, you had a certain forecast on what your dividend might be. From what you’ve seen so far, are you rising what you thought might be the possible dividend?
MB: Yeah, so coming into the 2020 financial reporting season, there was a high expectation around earnings growth and dividend growth. Earnings growth, plus 20, 25%, and we’ve seen that reflected in the portfolio, particularly on the dividends. We’ve had good dividend releases, we’ve had some special dividends, and we’ve had some buybacks as well. There is a high level of consciousness, among Australian corporates about providing shareholders with continuously good dividends, and I think importantly, its unsustainable settings as well, and you’ve seen that with the banks. It’s more modest payout ratios, but you are seeing the benefit there of earnings recovery.
PS: What’s going to a fund like yours, wouldn’t have actually held a company like BHP for dividends, but it’s been a great dividend pay in recent times. The revelation that they’re changing in, they’ve basically rolled the oil assets into Woodside, they’re pursuing Potash and all those sorts of things. What’s your outlook for BHP dividend going forward?
MB: I think in recent years, and I think you can take this across each of those big guy and all miners, is that it’s been an incredible discipline, around capital expenditure, about rebuilding the balance sheets there, and being far more focused on shareholder returns. So as commodity prices have risen, free cashflow has gone up, particularly because they’re not spending as much capital, and so that free cash flow is then being delivered back to shareholders through higher dividends.
You’re absolutely right, in recent terms, this is a new phenomenon from the miners have been providers of very attractive dividend yields for Australian shareholders. And yes, you are right, they’re also pivoting to new businesses, but not withstanding that, iron and copper will still be the core drivers, of this business for the foreseeable future. Yes, they’re going to spin off the petroleum assets, but that’s around 10% of revenue, and additionally, they are moving into Potash, but that Potash investment of around five billion dollars, you won’t see any of the benefits of that, until around, 2027. It very much still is, and we have to be mindful of, it’s around the iron markets and the copper markets, and to a lesser extent nickel going forward. But I do expect that generosity, and that focus on shareholder returns, will remain with BHP for the foreseeable future.
PS: So, does that mean you’ll keep BHP with the same relative holding in the portfolio?
MB: Yeah, we still think that we’re going to get good dividends around BHP, and they have been executing very well.
PS: Any other surprise or interesting dividends stories coming out reporting season Marcus?
MB: I think more so on the outlook. In the first half of the reporting season, we did see more earnings beats, we saw stronger dividends, and we saw more buy backs. I think more recently there’s been a more cautious tone around guidance, particularly with Australian companies in both New South Wales and Victoria. So, we’ll just need to see how that plays out, but the portfolio is pivoted towards those strong consumer staples or defensive industrial companies, like Amcor and Brambles. They’re still generating very good earnings and very attractive dividends for investors.
PS: Marcus Bogdan, thanks for joining us.
MB: Thanks very much, Peter. Cheers.
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