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Overview
The recently completed full year reporting season confirmed the rebound in dividends for ASX 200 companies after many were cut or suspended in August 2020. Large dividend increases were recorded across the board, with 47 companies at least doubling their dividends from 12 months ago. In particular, the increases in dividends from the mining sector were notable on the back of a buoyant commodity price environment.
Chart 8: Dividends bounce back in reporting season
Source: Bloomberg
This recovery in dividends, combined with the pullback in long bond yields over the last several months has once again restored a yield premium for the ASX 200 of nearly 3% over the domestic 10 year government bond yield. On a relative basis, this is a significant premium compared to that over the last decade, as illustrated in the chart.
Chart 9: Yield support for ASX 200 restored
Source: Bloomberg
For the Australian equity market, the best illustration of how quickly companies have transitioned from capital presevation at the height of the COVID crisis to capital deployment is through the rebound in mergers and acquisitions (M&A) activity over the course of 2021. With corporate balance sheets relatively healthy, very low funding costs and confidence in a quick recovery once vaccination targets are achieved, M&A deals have again become a significant driver for the ASX. Significant proposed deals in the last month include infrastructure assets in Sydney Airport and Ausnet.
Chart 10: M&A activity surges in 2021
Source: Bloomberg
