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These are the best dividend surprises from the reporting season

There’s only a week left of the nail-biting reporting season that has thrown up its fair share of earnings surprises. But the real action, in my opinion, is what companies are doing with dividends.

The fact is, earnings beats and misses are tracking in line with historical averages with the number of positive surprises more or less in line with negative ones so far.

But it’s not the same for dividends. Data from Macquarie Group Ltd (ASX: MQG) shows that the ratio of companies (under its coverage) reporting better-than-forecast dividends to less-than-expected dividends is 1.5 to 1.

In other words, there are 50% more beats than misses!

I am not sure if that is a record but that’s a pretty noteworthy figure even though the last week of the reporting season could well change all of that given the mad rush to announce results towards the end of the month.

SMSF and income seeking investors rejoice! But even growth investors should sit up and notice as the dividend trend is telling.

Company boards will only pay higher dividends if they are confident that their future earnings can sustain this as it is a cardinal sin to cut dividends.

While a boost in dividends may indicate that the company has run out of growth options (and therefore require less capital to invest in the business), this doesn’t seem to be a feature in this reporting season. That’s understandable as economic growth is expected to accelerate, not decelerate.

So, a lift in dividends is effectively a sign that management is bullish about the company’s near to medium-term outlook.

There have been a number of large caps that have lifted their dividend payments even as they posted worse-than-expected results. This includes fast food chain Domino’s Pizza Enterprises Ltd. (ASX: DMP), wealth manager AMP Limited (ASX: AMP) and mining giant BHP Billiton Limited (ASX: BHP).

However, the companies on Macquarie’s list that have delivered the biggest dividend surprises so far include mining services group Mineral Resources Limited (ASX: MIN), insurer Suncorp Group Ltd (ASX: SUN), building materials supplier Boral Limited (ASX: BLD) and investment services group IOOF Holdings Limited (ASX: IFL).

I suspect we will continue to see more companies lifting their dividends before the February reporting season draws to a close.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Boral Limited, Domino's Pizza Enterprises Limited, and Macquarie Group Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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