Is it really only 12 months since those forecasts of financial Armageddon and the worst sharemarket crash in history? This time last year, as the market reached ever-lower lows, panic gripped investors by the throats and many sought bank deposits for security. Strong equity returns seemed like a thing of the past and it was predicted that it could take years, if not decades, for companies to recover.

One year on and Australian companies appear to have emerged relatively unscathed, with the emphasis on relatively, of course. They have implemented rigorous cost-cutting measures, raised capital to pay down debt and tidied up unhealthy balance sheets.

Gearing at companies - that is the ratio of net debt to total assets on their books - has fallen dramatically. Average gearing at the top 200 companies is down from 38 per cent in December 2007 to 23 per cent.

As the market edges upwards, mid-year reporting for Australian companies showed remarkably good cheer. Many surprised on the upside of earnings expectations. Not only are tighter belts helping rein in costs but rising revenues are helping on the other side of the balance sheet.

Sectors that did well were mostly cyclical stocks - those companies that depend on strong economic growth to outperform - and included mining, banks and cyclical industrials. Banks and construction material companies announced the biggest surprises, with 67 per cent of companies in both sectors revealing better earnings than expected. That was followed by capital goods companies (such as Hills Hoists and Cardno), which were 33 per cent above expectations.

Those that didn't do well were mostly defensive, such as energy and insurance, where earnings downgrades exceeded upgrades by a ratio of two to one.

After 12 months of difficulties, companies are now starting to release some profits back to shareholders through dividends.

Although rising interest rates continue to boost the attractiveness of cash, stocks that are able to maintain dividend payout ratios at some level should be an inclusion in any smart investor's portfolio.

Deutsche Bank says that aggregate dividends rose by 15 per cent; however, they fell by 9 per cent when measured on a per-share basis. That's partly due to a rush of share raisings last year.

Analysts at the Royal Bank of Scotland were surprised by the increases across the market, with actual dividends exceeding its forecasts by 1.8 per cent.

Companies that delivered on the dividend front were mainly in the banking sector - Commonwealth Bank announced an increase of 6.2 per cent in its interim dividend, over the same period last year, to $1.20 a share and Bendigo Bank kept its payment constant at 28 cents.

But retailers also delivered some surprises - JB Hi-Fi, long considered a growth stock, raised its interim dividend by a massive 120 per cent to 33 cents a share. Wesfarmers, which owns Coles, increased its payout by 10 per cent to 55 cents and Woolworths delivered a 53 cent dividend to shareholders, an increase of 10.4 per cent. Harvey Norman was also a stellar performer; an earnings-per-share increase of 38.4 per cent enabled it to deliver a 40 per cent increase in interim dividend to 7 cents a share.
If you're still not totally convinced the hard times are behind us, you might want to consider companies that have been able to deliver on the payout front, a good addition to a portfolio in both good times and bad.

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