Forum Archive Index - February 2003

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

Hi gooner,
 

>
>People who have criticised Gold investment due to the rising
>exchange rate tend to overlook the fact that all NZ commodity stocks
>also lose out because of the same rising rate.
> 
>Snoopy's beloved WRI will suffer..........it may have to shred its
>dividend.
> 
>

If WRI, being the largest rural retailer, is a commodity business 
then by the same logic the Warehouse, being New Zealand's largest 
retailer is also a commodity business.   Granted WRI is yet to prove 
itself like the Warehouse, but to lump it in with FFS and CAH is, I 
think, unfair.

>
>
>Also, if WRI pays a good divvy yet the share price goes down (which
>it may well do in the near future) then surely that negates the
>effect of the dividend?  If you make 10% return on divvy per annum
>and the share price goes down 10% then your return does not look
>quite as nice. 
> 


Yes good point, but I would argue this has already been taken into 
account by the market.   The share price can go down 8% and 
taking dividends into account you will still be ahead of putting the 
money in the bank.  

I don't see WRI trading on a yield of 14-15% forever.   Something 
will have to give.  Either the share price will rise or the dividend 
will fall.  I'm speculating a bit here, but my prediction is that, a 
couple of years out, both might happen.

I'm pulling figures out of the air here, but if the dividend goes 
down from 11.5cps to 10cps (a 10% reduction) this gives a yield of 
12.5% based on today's share price of $1.20.  To reduce this dividend 
yield to a more reasonable (but still high) 10% we can expect the 
share price to rise (yes I did say rise- on decreasing earnings) to 
around $1.50.  The more I look into these figures to more extreme the 
scenario that would actually lead to a WRI share price decrease 
becomes.  I think you will agree that a share price rise from $1.20 
to $1.50 within two years, plus collecting good dividends along the 
way, is a pretty attractive proposition in today's market.

You can play around with these figures and say that earnings are 
likely to fall more than 10%.  But this doesn't mean the dividend 
will fall by more than 10%.  Dr Freeth, MD of Wrightson's, is well 
aware of the company's poor reputation when he took the helm, and he 
won't be wanting the dividend to slip badly so undoing much of what 
he has done.  WRI has such a strong balance sheet they may even 
consider paying out more than their total earnings just so that the 
dividend can be maintained.

SNOOPY

discl: hold WRI, and still no gold!  Or perhaps I do?  Do you think 
there might be gold in them there Wrightson warehouse shelves?


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