Last week, Prime Minister Scott Morrison gave a 1-hour speech that outlined ways the government would work to create jobs within the Australian economy. This will be known as the JobMaker program and will include changes to industrial relations (IR) laws, along with skills and training.
The 3 S&P/ASX 200 Index (ASX: XJO) shares discussed below have seen a significant amount of their gains in recent years absorbed by higher wages. If new IR laws come into play that allow a reduction in these wage bills, these companies could potentially have the capacity to pay higher dividends to shareholders.
Telstra Corporation Ltd (ASX: TLS)
Telstra is Australia's largest telecommunications company providing physical networks, hardware, mobile, voice and internet services. In the half year to December 2019, Telstra paid $2.17 billion in labour costs. That's almost double its net profit of $1.15 billion.
According to its annual report, Telstra has a highly skilled workforce of 29,769 full-time employees, many of whom are likely receiving pay rises every year. This can erode profits and is significant given that Telstra's wages bill forms such a large amount of its expenses.
Last year, Telstra came close to a strike by some of its employees. It averted the action by offering better conditions and pay rises. Over the last year, Telstra paid dividends of 16 cents per share, fully franked. If the group sees reworked IR laws, it may have scope to reduce its labour bill and increase dividends.
BHP Group Ltd (ASX: BHP)
BHP is an Australian-based global mining and energy giant. It has 72,000 employees, many of which are in Australia and work in highly skilled mining roles. Recent enterprise agreements proposed by BHP were struck down by the Fair Work Commission. If enterprise agreements that are more favourable for BHP are introduced and accepted due to reworked IR laws, it could see its wages bill reduced. This should lead to higher dividends.
In its latest annual report, BHP set out that it aims for no lost time due to industrial action. While this may help to keep production levels high, it also means that BHP may often be at the mercy of unions in negotiating collective agreements. Reworked IR laws will potentially make it easier for BHP to negotiate agreements with workers, with less fear of industrial action.
At the time of writing, BHP trades on a trailing dividend yield of 5.97% fully franked. This works out to about $6.2 billion in the last year. Payments to employees were $6.06 billion, therefore any reductions in wages could be favourable for shareholders.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is an Australian conglomerate with interests in retail, coal mining, chemicals and fertilisers. It owns distinctive retail brands including Bunnings, Target, Kmart and Officeworks. Wesfarmers is one of the largest employers in Australia with 223,000 employees. Many of those employees are skilled and covered by collective agreements. These are the types of agreements the Prime Minister may be targeting, as they often include penalties and loading for weekend or overtime work.
In 2019, Wesfarmers paid $4.14 billion in remuneration for continuing operations. This was a significant 5.67% increase on the prior year. Revenue on the other hand only increased 4.3% over the same period. Net profit after tax was $1.9 billion in 2019, less than half the amount paid out in wages.
Wesfarmers has a trailing dividend yield of 3.72% fully franked. If penalties and overtime are targeted as part of the JobMaker package, this could improve significantly. This is especially significant for Wesfarmers given the amount they pay out in wages each year.
Foolish takeaway
The details of the JobMaker program have not been released, however, investors could profit from getting in early. If the Prime Minister does change industrial relations laws in a way that is favourable for companies like these, it could mean a solid increase to dividends.
