Forum Archive Index - November 2002

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

Why would an income investor buy shares in Scott Technology, a share 
which has one of the lowest dividend yields on the market (2.4%) ?

A big boost in final dividend announced recently brings dividends for 
the year up to 11cps, up from only 5.5cps last year.  Using 
today's share price of $2.33, this brings the dividend yield up to 
4.72%, equivalent to 7.2% before tax (based on a 33% tax rate).  

But wait, it gets even better!  Scotts expect to maintain their 
dividend rate per share next year based on a looming 1:8 bonus issue. 
 This gives a prospective yield of 5.31%, equivalent to over 8% 
before tax!   Try getting that from a term deposit, and you will see 
why SCT should be on the watch list of the income investor.

Scott Technology makes machines that make other machines (like 
washing machines and fridges).  Unusually for an NZ company,they are 
almost entirely overseas focussed.  Investors had a tough 2001, when 
the key export market of North America ground to a standstill.  These 
were dark days with the share price plunging to a low of $1.10 as the 
dividend was slashed.  But while profits plunged, the key asset of 
Scotts, its people, remained.  

Talk about job stability, the current CEO, Kevin Kilpatrick, has been 
with the company for 34 years.  Yet he is still a short termer 
compared to former CEO Graham Batts who retired in year 2000 after 44 
years of service.  Retired is perhaps the wrong word as Batts is 
still now an independent director!  I think there is something deeply 
impressive about any company that can keep able men like this with a 
single company for their entire careers.

The fickle investors may have given Scotts a caning on the market, 
but the deeply committed work-force never let their eyes off the ball. 
 
Selling their expertise in other markets, particularly Europe, was 
stepped up.  Even the home market in NZ, by way of PPCS and the meat 
trade,  came into focus with the development of what is in effect a 
robotic freezing worker.  Scotts heads into FY2003 more diversified 
in a market sense, but still heavily focussed on their core 
competence of production lines.  This is a competance which Scotts 
have built up in New Zealand that is truly world class competitive.  

All this folks and you can buy into a projected yield of 8% for only 
$2.33 per share.  Even better would have been to buy into it a year 
or so ago when the cloud of then current events obscured the big 
picture.  Back then, pieces of the company (the shares) were for sale 
in the mid one dollar bracket and lower.  Hey, just a minute!  That's 
what I did!

SNOOPY

discl:  Long term holder of SCT who used the 2001 share price dip to 
increase position in the company.




  
---------------------------------
Message sent by Snoopy 
e-mail  tennyson@caverock.net.nz
on Pegasus Mail version 2.55
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"Stay on the upside of the downside, 
Anticipate the anticipation!"



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