The ASX 200 has maintained a trend of strong earnings upgrades since late last year at an average of more than 3% per month. While recent upgrades have been led by the resources sector, earnings upgrades have still been broad-based in nature and thus expectations were high for August’s full year reporting season.
Chart 4: Expectations high in the lead into reporting season – monthly earnings upgrades
At the height of the COVID crisis, the forward dividend yield on the ASX 200 fell to a low of 3.2%. While dividends have risen in the current reporting season, the yield of the market still remains less than 4% due to the strong equity returns over the last 12 months. With yields on industrials and financials stocks remaining below pre-COVID lows, it is the resources sector which is helping to lift the overall dividends of the market as the miners return a high proportion of their profits to shareholders.
Chart 5: Resources dividends supporting the market’s dividend yield
Australian value stocks were significant outperformers relative to growth in the early part of 2021 on the back of enthusiasm around the economic recovery and rising commodity prices and bond yields. With the yield curve since flattening, uncertainty arising amid further lockdowns and commodities retreating, the gap between the two indices has closed.
Chart 6: Australian growth catches up with value in 2021