Forum Archive Index - March 2004

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

Hi Rose,

(Rose sent me this e-mail off forum, but I think it is worth sharing
the content with the group) 

> 
>Just to add a few points regarding companies paying
>more dividends than earnings per share 
>
>*       This could mean the company  does not have a big 
>capital expenditure requirement.  It could also mean the
>industry is mature, the competition is strong and the company 
>does not have strategic plan to grow business in the near future. 
>
>*      
>Paying a dividend is a way of keeping the share price high. Because 
>investors like certainty, like cash in the hand. It is safer to let
>investors invest the surplus by themselves rather than the company
>finding the investment 
> opportunities.       
>

All good points

>
>Sometimes the company still pays high dividends in order
> to hold the share price even though the profit is falling .
> In this case the investors should not be fooled (eg, WRI)
> 

Again good point, but I have to disagree with your example.  

WRI have cut their interim dividend from 3.5cps to 2.5cps IIRC.    It
is true that even 2.5cps is more than they earned per share in the
first half.    However, this same strategy (paying out more than they
earned in the first half) has been used over many years. 

This is because the business is seasonal, and the profit is always
much greater in the second half.    Wrightson have a strong balance
sheet, so I see absolutely no problem with a little bit of income
smoothing between the interim and final dividends.  AFAIK, Wrightson
have never paid out more than their full year profit in any calendar
year.

SNOOPY
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