NZ Refining hangs on to lead in gross dividend yield rankings

Friday 12th April 2002

GROSS DIVIDEND YIELDS

10% and above		Below 4%

NZ Refining	15.1%	Designer Textiles	2%
Wrightson	14.4%	Northland Port	2%
Sky City	13.3%	Wakefield Hospital	2%
Newmarket	12.1%	Carter Holt Harvey	2.1%
Horizon Energy	11.3%	Briscoe	2.2%
Powerco	11.3%	Natural Gas	2.6%
Capital Properties	11.0%	Ryman	2.7%
Kiwi Income	10.8%	Scott Technology	2.7%
Colonial First	10.2%	Warehouse	2.7%
CDL Hotels	10.0%	GDC Comms	3.2%
		INL	3.2%

Rises in interest rates combined with share price changes associated with companies prospects to alter the range and ranking order of gross dividend yields over the past nine months.

The table shows the 10 companies with the highest gross dividend yields at the end of last week and 11 with the lowest, the latter including GDC Communications and Independent Newspapers which were tenth equal.

All figures were taken from The National Business Review's share tables, where dividend information is based on payments made in the two previous half-years, rather than the last full financial year.

Gross dividend yields take account of imputation credits attached to actual payments and grosses them up at 33% tax rate.

An analysis of gross dividend yields was last included in NBR on July 27, 2001.

The latest table shows a contraction of the range of yields in both sections since July.

Yields above 10% last year ranged from New Zealand Refining's 19.3% to Powerco's 10.3% and the 12 below 4% went from 1.1% for Tasman Agriculture to 3.4% for Fisher & Paykel and Frucor Beverages.

NZ Refining still had the highest gross dividend yield last week but it had retreated to 15.1%. The cutoff point for the tenth highest was 10%.

The range of yields below 4% also contracted in the period, now being 2% to 3.2%.

Several companies in both sections of the table appeared in the corresponding sections in July; seven in the "above 10%" and five in the "below 4%."

The "aboves" were NZ Refining, Newmarket Property Trust, Horizon Energy, Powerco, Capital Properties, Kiwi Income Property Trust and Colonial First State Property Trust.

Those on both "below" lists were Northland Port Corporation, Ryman Healthcare, The Warehouse, GDC and INL.

Similarities between the July and April tables were understandable, for two reasons.

There was little change to corporate profitability prospects over the period and consequently only relatively modest movements in share prices.

Both lists of the yields over 10% were weighted heavily with utilities and property companies.

The market treats those groups as income stocks and utilities are also classified as defensive shares.

Companies with gross yields below 4% tend to be rated as capital gain investments or may have paid modest dividends during a recovery period. The latter may show comparatively low yields even at modest share prices.

It is worth repeating why dividend yields can be high, apart from movements in interest rates, the level of imputation credits and classification income stocks.

The market might view current dividends as unsustainable, profit projections as pessimistic, particular companies as unfashionable investments and/or the company or its industry sector as lacking institutional support.

Subject to those negatives, companies with high-gross dividend yields should be attractive propositions for income-conscious investors.

New Zealand Refining, for example, showed little capital gain recently in percentage terms as opposed to dollar movements but a 15.1% yield "in the hand" is a worthwhile return.

An investor in Wrightson over the past year enjoyed the dual benefits of capital gain and a high gross yield.

Solid yields have to be discounted for the risk associated with equity investments but can still be good value, assuming dividend payouts are maintained at current levels.

That is relevant to the Wrightson situation. The recent rural boom will die down and rural service companies share prices could ease.

Wrightson's prudent directors were probably conscious of that when setting their dividend policy.

Investing for income yield rather than capital gain lacks sex-appeal. It is a suitable investment policy for people who are risk-averse and like regular cash payments which, subject to residual risk, are higher than those from taxable, fixed-interest securities.

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