22/08/2006 - 22:00

Property stocks lead way on dividend yields

22/08/2006 - 22:00

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Investors in listed Western Australian companies are usually focused on the potential for capital gains, but in a minority of cases there is potential to earn a tidy income from dividends.

Investors in listed Western Australian companies are usually focused on the potential for capital gains, but in a minority of cases there is potential to earn a tidy income from dividends.

Just over 60 WA companies paid dividends in the past year – out of about 500 listed companies based in Perth – and in some cases the divi-dends equated to a very healthy yield.

The companies with the highest dividend yield were special cases.

Esplanade Property Fund, formerly the Flexi Property Fund, provided a high return to investors because its previous responsible entity, Guardian Funds Management, sought to sell all of its property assets and return the cash to unitholders.

The fund is now run by Entrust Funds Management, which is seeking to build a diversified investment portfolio of shares and property assets.

Schaffer Corporation has paid a series of special dividends funded from the sale of its property investments.

This is part of its strategy of focusing on its core business activities, which comprise automotive leather supplies and building products.

The dividends listed in the table include special dividends and capital returns, as well as traditional dividend payments in each company’s last financial year.

These payments are divided by each company’s average share price over the financial year to calculate their dividend yield (after making any adjustments for events like capital reconstructions and share splits).

The dividend yield provides a handy comparison with the income investors can make from other income-producing investments, such as debentures, term deposits and property trusts.

An added benefit of dividends is that, in most cases, the payments are franked, which means they are taxed at a concessional rate in the hands of the shareholder.

The sector that generally offers the highest dividend yields is property, represented by listed companies such as land developers Port Bouvard and Peet, fund manager WRF Securities, Westralia Property Trust and Aspen.

Among the major WA companies, Wesfarmers made the largest dividend payment last year of $2.15 per share. This equated to a dividend yield of 6.1 per cent.

Coventry Group delivered a very high yield after paying total dividends of 66 cents per share, including a special dividend of 30 cents in July 2005.

Other industrial companies making large dividend payments included Fleetwood Corporation (60 cents), West Australian Newspapers Holdings (50 cents) and Monadelphous Group (50 cents).

Each of these companies has a mature business structure and generates solid, consistent profits, providing their directors with the scope to declare substantial dividend payments.

In Wesfarmers’ case, managing director Richard Goyder said the dividend equated to 93 per cent of the company’s net profit after tax, excluding the one-off profit from the sale of its interest in Australian Railroad Group.

In the case of WA Newspapers, the company’s dividend payment was actually higher than its reported net profit, with the latter adversely affected by one-off costs associated with a major upgrade of its printing facilities.

These costs included staff redundancies and accelerated depreciation of old printing equipment.

The company said it used retained earnings to “normalise” dividends paid for 2005-06 and intends to “normalise the impact of the production upgrade on 2006-07 dividends”.

Its decision to smooth its dividend payments would reflect the priority many investors attach to a reliable income stream from dividends.

In contrast to mature industrial companies that pay steady dividends, the resources sector is usually not seen as a good place to invest for people wanting dividend income.

Resource companies with substantial dividends included Woodside Petroleum (93 cents per share), Jubilee Mines (45 cents), Iluka Resources (22 cents) and Consolidated Minerals (18 cents).

In most of these cases, the dividend yield was at the lower end of the spectrum.

Nickel miner Jubilee Mines was an exception, with a competitive dividend yield of 6.3 per cent.

Under executive chairman Kerry Harmanis, the company has paid out most of its profits to shareholders.

At last year’s annual meeting, Mr Harmanis said that, between mid-2000, when its Cosmos mine started operations, and June 2005, the company had generated total profits of $266 million, representing earnings of $2.15 per share.

From these earnings, the company has returned $1.33 per share by way of dividends, representing a payout ratio of 62 per cent.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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