Forum Archive Index - January 2000

["Mike Hudson" <mikehudson@clear.net.nz>]

Hugh wrote

"People have alleged that the NZSE is about the worst performing stock
exchange in the OECD or the West or whatever but in terms of gross dividend
yield I'd be surprised if NZ wasn't the best in the world at the moment.
Why go offshore for lower less dependable returns? What's wrong with shares
like say Hallensteins (brilliant gross dividend return and has been
maintaining it for years) which is increasing the momentum of its initial
foray into Australia? "

This raises a very good point and I will give you a very good example from
my own experience. In May 1994 I bought 1500 HLG at $3.70 for exactly the
same reasons as Hugh (well managed company, no debt, high yield, possible
expansion into Australia) , bought 1500 more in June 1995 for $2.76 and a
further 2000 in June 1996 for $2.55. I still hold these shares so the net
result has been

Purchase price              $14,790
Today’s Market value    $11,050
Dividends net of tax       $  4.700
Net Gain                        $     960

Somewhat less than spectacular to say the least.

About three  years ago I considered selling HLG and buying WHS, but I didn’t
make the move because at that time I thought that at the then current prices
of both stocks WHS was fully priced and that HLG still had upside potential
which was enhanced by a likely fall in interest rates which would benefit
high yielding shares. At the time WHS was selling for $3.40 (fully priced!)
Therefore I could have sold my HSG at $2.65 and bought 3780 WHS after
allowing for brokerage.

The result for the next three years would have been

Purchase price              $12,852
Today’s Market value    $30,996
Dividends net of tax       $  1,247
Net Gain                        $19,391

Not much of a contest. The income that Hugh talks about could have been
achieved by progressively selling down the holding in WHS.

The reason why HLG is such a high yielding share is of course because it is
going nowhere; it has no growth prospects (although I hang on to mine in the
hope that somebody will take over the company and shake it up) This is the
case for most high yielding shares on our market. Property shares are IMO
the only shares that should be considered primarily on yield and they are a
totally different of fish.

I am sorry to go on for so long but this income versus capital gain
discussion is an interesting one and it is a miserable day in this place
that Tony describes as a fantastic part of New Zealand so there is not much
else to do.






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