We’re now well into the new financial year.
And most Australian companies have long since reported their results for the last 12 months. Of course, this includes the listed investment companies (LICs) we follow here at Strong Money.
I thought it made sense to cover the results of these LICs each year, and track the dividends paid. Since I’ve started doing this myself, I thought you guys might be interested too.
Not for excitement (ha!), simply to follow along! And to track the progress of dividends paid by Aussie companies over time.
Remember, these LICs can be thought of as a rough measure for corporate Australia, given they own a decent spread of our medium and large-sized businesses. Let’s get started…
If I have to see another market crash prediction or claim how it’s all going to end badly very soon, I think I’ll throw up.
Actually, no, I’ll probably just ignore it like I do the rest of them!
(read my post on this topic – What If Australia Crashes?)
For all the talk of the ups and downs, not much really happens in the sharemarket. And I mean that.
Taking a high level view, usually company earnings are up a bit, down a bit, or flat. Some businesses are doing great, while others languish. Get used to it, that’s just how it works.
But for us, the average is what matters. Whether company earnings are, on average, increasing. And whether dividends paid by those companies, on average, are increasing.
Let’s say you own a corner store in your neighbourhood. And you’re making a nice predictable amount of cashflow every week. You quietly go about your business and you’re happy with the income it generates.
Someone comes in and offers you $100k for the store. But you ignore them because you’re not interested in selling. Then next week they come in again and offer $90k for your store. Your income is unchanged. Would you worry that the offer for your store has dropped?
I hope not!
By watching market prices and worrying what you’re being offered (daily) for your companies, that’s exactly what you’re doing. When most of the time, the company is doing just fine and nothing has changed.
The only thing that changes much are the moods of the people playing the paper-money gambling game. This bullshit mentality of trading back and forth because of price movements is utter madness.
It’s about the businesses, not about the prices.
First, I’d like to note this is not to compare which LIC is better than the rest, so you can simply buy that one. It doesn’t work like that.
Each will have their turn in the sun, performing better than the others in certain years. On average, they will likely each do well over time.
And remember, it’s all about the long term income stream!
For all the headlines, ups and downs over the last 12 months, let’s have a look at how businesses did…
Australian Foundation Investment Company (AFIC)
Earnings per share increased by 10.8%. Dividend kept steady.
Argo Investments (ARG)
Earnings per share increased by 2%. Dividend increased by 1.6%.
Milton Corporation (MLT)
Earnings per share increased by 5.3%. Dividend increased by 1.6%.
BKI Investment Company (BKI)
Earnings per share increased by 2.5%. Dividend increased by 0.3%.
Australian United Investment Company (AUI)
Earnings per share increased by 6.4%. Dividend increased by 2.9%.
That’s it. Pretty boring huh?
And that’s the point. This style of investing isn’t very eventful. But it’s enjoyable… and profitable. Which ultimately, is what matters.
Overall, earnings increased by a moderate amount. And dividends were either stable or up a bit.
Why the difference in earnings between each LIC?
Well, this was a year where mining companies had very good conditions and their earnings soared. So they were able to massively increase the dividends paid to owners.
The LICs which had higher growth in earnings this year, were the ones which hold more resource companies. But keep in mind, it was only a couple of years ago that BHP cut its dividend by 75%, so mining companies aren’t exactly the most reliable income providers.
Anyway, these things go in cycles. And next year it may well be a different bunch of companies which have the strongest earnings.
The point is not to try and pick which sector or business is going to do the best next year. No. There’s already millions of punters trying to do that!
The point is to own a broad spread of companies, so whatever sectors are doing well, you’ll benefit regardless. And the easiest and most sensible way to do that is by owning an index fund, or (my preference) a couple of these LICs.
Usually I’m not one for forecasts. But from what I’m reading, company earnings and dividends have continued to increase so far this financial year.
Clearly this bodes well for dividends over the next 12 months, so further increases seem likely.
As for where the market will go… who knows. And frankly, who cares. It’s just not worth thinking about.
Does your crystal ball work? No, mine doesn’t either!
At the end of the day, not a lot changes for dividend investors. That’s because we tend to think like business owners.
All that matters is how much cash our companies generate and how much they pass on to us as dividends. The rest is noise.
In fact, there’s a scale of excitement in the sharemarket and we’re right at the bottom of it.
Sharemarket Excitement Scale
Here’s how I see it…
— Traders and gamblers focus on speculative stocks which either go up like a rocket or crash through the floor. Excitement level 10/10.
— Investors who hold a group of individual shares or highly active funds, constantly assessing the moving value of their portfolio and hoping to outsmart the market. Excitement level 7/10.
— Investors which own broadly diversified funds like LICs and index funds, who watch the market regularly and focus mostly on capital growth. Excitement level 5/10.
— Investors who buy the same index funds, but focus only on the dividend income paid by the fund. Excitement level 2/10.
— Investors who buy diversified LICs with a long history of relatively stable and increasing dividends, and focus only on the dividends paid by those companies. Excitement level 1/10.
The higher up you go, the more volatile your ride will be. You might have more fun. And you might even make more money. Or you might not. But your chances aren’t good!
However, the lower levels are far more predictable and your results are more reliable. Personally, I’m much happier being lower on the excitement scale. Almost in a state of boredom!
Remember, our goal is to make money, not to be entertained. For us, that means investing for a growing stream of dividends from a diverse group of businesses.
Hopefully you’ve found this intentionally boring market roundup helpful! I’ll do this post once a year and we can follow the steady and inevitable progress together.
If you’re like me, your dividend income has increased relentlessly this year. Far more than the results above.
Not because we’re super-investors. Simply because we continually purchased more shares during the year. That’s why it’s important to devote more energy to saving, than you do to investing.
And always remember the principles of successful share investing:
Invest regularly, for the long term. Think like a business owner. Focus on the cash your companies generate. And ignore the market’s movements.
On this topic, Peter Thornhill is holding another full-day presentation in Sydney, on the 24th November. You can find the details here. If you can’t make it or you’re in another state, you can always re-read my chat with Peter here.