By Peter V O'Brien
Friday 20th February 2004 |
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There was a 13.3% increase in the NZSX 50 index between August 1 and last Monday and the NZSX 40 capital index went up 7.5%.
The NZX list had 19 companies with gross dividends of more than 8% on Monday, with six beyond 10%.
Those numbers excluded fishing company Sanford in both cases.
Standard sharemarket tables show Sanford with a gross dividend yield of 12.1%, based on last year's total payment of 41c a share, but the latter figure included a special 20c dividend to mark the company's centenary.
The "normal" dividend was therefore 21c a share.
Companies with gross yields of more than 10% on Monday were Wrightson (13%), Restaurant Brands (12.8%), Steel & Tube Holdings (12.3%, before taking account of the 1c a share increase announced on Monday in respect of the interim dividend for the six months ended December), ING Property Trust (11.2%), Pyne Gould Guinness (10.2%), and The New Zealand Refining Company (10.1%).
Restaurant Brands has indicated the net profit for the second six months ended February would be about $2 million lower than in the corresponding period last year, due to a decline in sales for KFC in the three months to December 31.
The directors expected to maintain the dividend at previous years' levels, so the 10.1% gross yield seems still valid, subject to containing the appropriate level on imputation levels.
There were seven companies with a gross yield over 10% in August and 10 last April.
Rising share prices pushed some of them under 10%, but they were among the 19 with gross yields above 8%.
The 19 included, as usual, several property companies apart from ING.
They were Capital Properties New Zealand, Macquarie Goodman Property Trust (formerly Colonial First State Property Trust) and National Property Trust.
Property companies always have comparatively high yields because they are priced for income (and usually close to net asset backing) and pay out almost all net profit as dividends, having little, or no, need for retained earnings.
Gross revenue covers expenses. Expansion through acquisitions of new properties are capital transactions and funded as such.
It is obvious dividend yields, net and gross, are linked to companies' share prices and consequently to the rise and fall of the whole share market.
Reverting to the situation in April, 2003, the NZSX 50 was 1924.77 on April 1 and the NZSX 40 capital was 1890.61. The former rose 26.3% in the intervening period and the latter 18.7%.
That had the effect of reducing dividend yields, irrespective of cases where a company decided prudence warranted a small cut in the payment.
The yield is also subject to the size of the actual payment and the consequent amount of imputation credits.
Computer specialist Renaissance Corporation, for example, paid an interim dividend of 4c a share for the six months ended June 30, 2003, after passing a final payment for the 2002 year.
The interim report referred to a statement made at the 2003 annual meeting in which the directors indicated they would be taking a conservative on dividends "during unsettled economic times.
"While trading remains very tight, the cash generation achieved over this first half, and prospects over the next six months, leave the company well placed to make an interim dividend payment."
"We are conscious of the need to move to a more regular dividend stream and provided results continue to meet expectations, directors anticipate paying a further dividend following the announcement of the full year result."
Renaissance's preliminary final report is imminent, so the market will soon learn the size of any final dividend.
The 4c a share payment was fully imputed, resulting in a gross dividend yield of 8.53% on Monday from a share price of 70c.
Renaissance's experience shows a good yield can be obtained from a relatively small money payment.
A yield could also be good if a company made a small payment but had a depressed share price due to market perceptions of its operating prospects.
An investor who bought the stock in those circumstances would be looking for recovery, or be solely income-driven.
Maintenance of dividend income would depend on the company's ability to sustain the historic payments, sometimes a doubtful proposition if operating prospects are weak.
Income-conscious investors should remember that the market will be pressed to continue the capital gains shown over the past 12 months. That is another reason to buy high gross yields.
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