Forum Archive Index - March 2004

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

Hi Harley,
 
> 
>The NBR share tables show that  LPC and TPW amongst 
>others paid out  in dividends per share 
> more than the company  earned per share.
> 
>To me this is not sustainable, bringing to mind TEL and TRH 
>both companies who went down this road in the past
>with subsequent financial  difficulties. 
>

Karyn W has already given you a good answer to this question, so I 
will confine mine to the specifics of the companies that you mention.

In the case of the Lyttelton Port company, the profit was reduced below 
dividend level in FY2003 because of the resolution of a long time 
dispute on manning hours.   The resolution of this dispute should be 
positive in enabling Lyttelton to attract new shipping contracts and so 
improve profitability in future years.  If you add back the one off nature 
of this cost you will see that the 11c dividend per share is covered.

Trustpower is one of those companies that has the ability to create 
shareholders equity out of nothing by revaluing its power generation 
assets.   If you think this is dubious, think about when the last time was 
that your power bill went down.

Telecom quite clearly paid too much for their foray into Australia at a 
time when they needed a lot of capital to upgrade their networks on 
both sides of the ditch.  That lead to the consequent cut in dividend 
and the associated share price dive.   If TEL hadn't had to fork out so 
much money on expansion and electronics then perhaps paying out 
more than they were earning in dividends might have worked for a 
while.

Tranzrail, well, what can I say.    It was basically asset stripped with 
little thought given to the capital needed to  maintain the core 
business.   Again paying high dividends while underallowing for capital 
expenditure was their downfall.

In summary, I think your concern that a company is paying out more 
than it earns in dividends is justified.  However, rather than use the 
broad brush conventional approach that says this is always bad, use 
this  as a signal to delve deeper and find out why the directors feel 
comfortable paying out more than they earn.   Paying out more than 
you earn in dividends  could be a selling or a buying signal, depending 
on what you find.

SNOOPY



--
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on Pegasus Mail version 4.02
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"Sometimes to see the wood from the trees, 
you have to cut down all the trees."




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