Dividend yield, outlook critical

Dividend yield and companies' outlooks are likely to be the focus of investors when the financial reporting season gets fully under way in New Zealand and Australia next week.

With low interest rates at the bank, more cash is flooding into the equity market as investors seek better returns, with the emphasis on dividends.

Craigs Investment Partners broker Peter McIntyre said company outlook statements and earnings expectations would be at the forefront of investors' minds.

''Earnings expectations are, on average, relatively upbeat with most companies expected to grow their earnings,'' he said.

Globally, share markets had rallied in recent months, with some improvements in key economies and better central bank support prompting more positive investment sentiment.

Forsyth Barr broker Peter Young similarly predicted a resumption in positive earnings growth for the market, noting the reporting season was dominated by companies releasing first-half 2013 results.

Forsyth Barr analysts were forecasting median revenue growth at more than 3%, earnings before interest and tax at more than 7% and earnings per share growth at ''a healthy 8%''.

Earnings growth forecasts by Craigs for 2013 on the NZX50 overall is 10.7% and on the ASX200, 7.9%.

''Generally, we're expecting a solid reporting season which will highlight the local market's resilience. Many of the good-quality companies remain profitable, well capitalised and with growth options,'' Mr McIntyre said.

During the past two years, several companies had shied off releasing detailed outlooks because of a mix of global volatility, the strength of the New Zealand dollar and myriad unsettling sovereign debt issues around the world.

In the next fortnight reports will be issued by Sky City, Steel & Tube, Cavalier, the NZX, Freightways, Property for Industry, Mighty River Power, Fletcher Building and Trade Me.

Earnings growth for the 20 largest companies on the NZX50 (excluding dual-listed ASX stocks) was forecast at 8%, then rising to 9% in 2014, with 36 companies of 46 with positive growth this year, rising to 41 companies next year, Mr McIntyre said.

He predicted that in New Zealand, positive results could be expected from Fletcher Building, NZX, Summerset, Trade Me, Pumpkin Patch and Port of Tauranga, but there were risks of disappointment from Sky TV, Steel & Tube and Hellaby Holdings.

In Australia, Mr McIntyre picked positive result expectations from IOOF Holdings, BHP, Seek and Woodside Petroleum, but investor disappointment from Newcrest Mining, QBE Insurance, News Corp and Computershare.

Most investors appeared realistic and recognised that much of the recent rally was due to the relative value in equities (compared to bonds), a rotation into risk assets and a lower likelihood of extreme market events, rather than any tangible uplift in earnings expectations.

''However, such a strong run still raises the bar and poses risks for companies who risk disappointing the market and missing expectations,'' Mr McIntyre cautioned.

-simon.hartley@odt.co.nz

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