With earnings season well underway we are now getting a feel for which share prices were justified and which weren't. We are also seeing which dividend yields were yield traps and which ones were paying genuinely huge yields.
This is particularly important to know for some of Australia's largest companies. Many of Australia's largest businesses are priced for growth yet probably won't deliver it.
If you're thinking that all the biggest companies pay reliable, sustainable dividends then think again. Both BHP Billiton Limited (ASX: BHP) and Australia and New Zealand Banking Group (ASX: ANZ) have cut their dividend by double digits in recent times.
Now they have reported, I think the below two businesses have shown they have the ability to continue paying their large dividend for the foreseeable future:
Suncorp Group Ltd (ASX: SUN)
Suncorp is one of the insurance giants of Australia with a market capitalisation of $17 billion. It's known for major brands like Suncorp, Bingle, AAMI and Terri Scheer.
In its half year report to December 2016 it reported cash earnings grew by 5% and reported net profit after tax grew by 1.3%. This wasn't a fantastic result, but it has stopped the decline in profits that has been happening thanks to several damaging storms on Australia's east coast.
The key statistic that lots of shareholders were looking for was the dividend, which was pleasingly up by 10%. It already had a large dividend yield and is currently trading with a grossed up dividend yield of 7.71%.
Suncorp shares look quite cheap and at 14.5x FY17's estimated earnings it could be a bargain.
Macquarie Group Ltd (ASX: MQG)
Macquarie is Australia's largest investment bank with a market capitalisation of $28.5 billion. It generates more than half of its earnings from overseas, making it a great way to get exposure to global markets.
It continues diversifying its earnings, away from cyclical revenue which should see it weather a recession better than it did with the GFC. From aircraft leasing to pursuing a 'green' bank in the UK, Macquarie is growing its portfolio of businesses well.
In its third quarter to December 2016 report, Macquarie updated the market to say it expects FY17 earnings to essentially be the same as FY16 earnings. This means that its large partially franked dividend yield of 5.14% should be maintained at the minimum.
Macquarie is trading at 13.8x FY17's estimated earnings.
Foolish takeaway
I think both of these blue chips will provide reliable, perhaps growing, dividends over the next 12 months for shareholders. Out of the two I think Macquarie has the better chance of growing its earnings nicely over the medium to long term. If you're after more great blue chip dividend payers, check out this report.
