This can be a pointy distinction to earnings season final yr, the place shareholders have been showered with greater than $34 billion in dividends, along with $20 billion value of share buybacks, as firms have been on a excessive after a yr of pandemic-boosted earnings.
Schellbach expects income and earnings outcomes from the previous monetary yr will once more be robust for many companies, however this could be largely irrelevant to skilled buyers, who would as an alternative give attention to firms’ forward-looking statements.
“Everything in their rear-view mirror has been strong because, over the past 12 months, we’ve been operating in a peak economy cycle, so the actual profit results will be OK,” he stated. “But I think the earnings estimates for next year’s results will be downgraded.”
Some sectors are prone to have a worse prognosis than others. For instance, discretionary retail firms resembling electronics sellers Harvey Norman and JB Hi-Fi, plus clothes retailers Myer and Premier Investments, are probably to really feel the pinch within the months forward from contracting shopper sentiment.
“For retailers, things are uncertain,” says Rhett Kesseler, fund supervisor at Pengana Capital. “Their cost bases are going up, with wages, rents and inflation all increasing.
“Particularly for discretionary retailers, we’re not sure about the level of consumer spending going forward. I would imagine their boards would err on the conservative side.”
‘Returns to shareholders in the form of dividends are just not the priority they have been previously.’
Richard Schellbach, strategist at funding financial institution UBS.
On the flip facet, shopper staples firms, such because the big-two supermarkets, are prone to be beneficiaries of upper inflation.
Analysts at Jarden instructed shoppers in a analysis notice this week the grocery sector is prone to outperform, predicting one other robust set of earnings via fiscal 2023.
Schellbach notes supermarkets may very well be one of many few sectors the place buyers may very well be shocked by stronger earnings or a extra bullish outlook, although he nonetheless expects them to be considerably conservative with their dividends, regardless of working in a extra secure part of the economic system.
“They are aware the outlook is uncertain: there are cost-of-living pressures affecting their end customer, supply chain constraints that remain, labour shortages. Returns to shareholders in the form of dividends are just not the priority they have been previously,” he says.
Mining firms are one other sector to observe. Some analysts suppose they could present buyers with an unexpectedly good consequence.
Market-watchers at Wilsons instructed shoppers final week that larger commodity costs might imply useful resource firms, resembling Santos and Woodside, might generate “super-normal levels” of money and carry their dividend payouts to buyers.
- Advice given on this article is common in nature and isn’t meant to affect readers’ choices about investing or monetary merchandise. They ought to at all times search their very own skilled recommendation that takes into consideration their very own private circumstances earlier than making any monetary choices.