Australian companies suffered a 26 per cent slide in profit and barely lifted sales in the second half of 2014 as nervous consumers and businesses kept their wallets firmly shut.
According to research by CommSec, Australia's top 200 companies lifted revenue by just 0.2 per cent during the six months to December 31, to an aggregate $298.2 billion.
Combined with higher expenses, the flat revenue growth contributed to a 26 per cent fall in profits to $25.7 billion during the half.
CommSec chief economist Craig James said the disappointing performance was the result of subdued consumer and business sentiment.
He said concerns about rising unemployment and soft economic growth meant consumers were reluctant to spend money which, in turn, made businesses less likely to invest money on growth.
"Overall, companies are travelling ok. But, what we need to do is to get consumers out there spending and employers out there hiring people," he told AAP.
But CommSec, which based its research on the half year results reported by companies during February's reporting season, found that despite the profit slide, dividends actually increased during the period.
Companies lifted dividend payouts to shareholders 2.2 for the half, although the number of businesses paying a dividend fell from 89 per cent to 86 per cent.
Mr James said most major Australian companies still had plenty of cash on hand, which was why they were able to lift dividends.
"If companies weren't in good shape they wouldn't be able to increase or maintain dividends," he said.
Economists have criticised Australian businesses for hoarding cash or increasing dividends to shareholders instead of investing money to grow the businesses in recent years.
Weak business investment has weighed on Australia's economic growth recently and Reserve Bank Governor Glenn Stevens, in 2014, said boardrooms needed to be prepared to take on more risks.
But the appetite among investors for dividends was clearly on display during February when companies that lifted dividends or announced share buy-backs - like Seven Group Nine, Fairfax Amcor and Rio Tinto - saw their share prices surge even after sometimes lacklustre profit results.
