eps vs dps (FY2017 Perspective)
Quote:
Originally Posted by
Snoopy
They say history is no guarantee of future results. But I have created the following table, charting earnings per share in a calendar year verses dividends per share in a calendar year. This is representative of AWFs cash flow position for the respective years. This differs from the companies declared results because the final dividend is always paid in the subsequent year. I am more comfortable using actual cash flow though, which is why I choose to present the eps/dps results in this way.
I have left out the one off dividend of 3cps paid in FY2014 as a result of the capital gain made on the sale of the healthcare business. One off sales do not represent repeatable sustainable dividends from ongoing operations.
|
eps |
dps |
2007 |
7.0 |
8.93 |
2008 |
7.2 |
5.8 |
2009 |
8.2 |
6.5 |
2010 |
7.7 |
4.5 |
2011 |
13.5 |
8.3 |
2012 |
14.5 |
11.4 |
2013 |
18.7 |
14.4 |
2014 |
16.4 |
15.6 |
2015 |
16.7 |
14.8 |
Total |
109.9 |
90.23 |
Over the last nine years, AWF have paid out 82% of their 'ongoing earnings' as dividends. The 18% of earnings retained (together with the cash issue earlier in 2015) have been used to grow the business. ROE has been maintained at good levels from FY2011 to FY2014 inclusive. This indicates retained earnings have been used wisely. This bolsters my case for AWF Limited to be regarded as a 'growth company' for financial modelling purposes.
I am in favour of using data that goes back up to ten years, to get a view across the 'business cycle'. In the case of AWF Madison though, I feel that would be misleading today. With the addition of 'Madison Recruitment' and 'Absolute IT' to the fold, I think there is an argument for dropping all indicative data outside of a minimum five year window.
I have left out the one off dividend of 3cps paid in FY2014 as a result of the capital gain made on the sale of the healthcare business. One off sales do not represent repeatable sustainable dividends from ongoing operations.
|
eps |
dps |
2013 |
19.7 |
14.4 |
2014 |
16.2 |
15.6 |
2015 |
16.8 |
14.8 |
2016 |
16.0 |
15.2 |
2017 |
19.6 |
16.0 |
Total |
88.3 |
76.0 |
This represents an average dividend payout ratio over the last five years of:
76.0 / 88.3 = 86%
SNOOPY
P.S. Just noticed on p15 of AR2017 that AWF have a policy of paying out 65-70% of 'underlying earnings'. 'Underlying earnings' is a unique construction of AWF management which allows for the 'amortization of intangible assets' (a non cash item) to be added back in, less a deferred tax effect based on the 28% tax rate. 'Underlying Earnings' calculated this way is a proxy for cashflow, and cashflow is what dividends are paid from. However, I still contend that 'underlying earnings' is a misleading measure to assess AWF performance. That's because real shareholder cash was used to create the now 'intangible assets' that are being amortised. Just because the cash was paid 'up front', does not mean it should be ignored from an earnings perspective.
The amortization expense was $2.272m for FY2017 (p36, AR2017)
So 'Underlying earnings' for FY2017, based on the declared NPAT of $5.867m would be:
$5.867m + (1-0.28)x $2.272m = $7.503m
65-70% of that figure, the projected dividend payout for FY2017 is:
(0.65 to -0.7) x $7.503m = $4.877m to $5.252m {A}
The actual dividend declared for FY2017 is 8.0c (interim) and 8.2c (final). There are 32.463m AWF shares on issue. So the amount declared as a dividend for FY2017 is:
($0.08+$0.082) x 32.463m = $5.259m {B}
Comparing {A} and {B}, we can see that the declared dividend, which is actually paid over FY2017 (interim bit) and FY2018 (final bit) is right at the top end of policy guidance (70% of underlying earnings).
Yet the actual dividend paid as a percentage of net profit during FY2017 is 16c/19.6c = 82% of NPAT.
Shareholders should be aware that paying out 70% of 'Underlying Earnings' is the same as paying out 82% of 'Net Profit After tax'. But let's not get too picky with management. What difference does 12 percentage of net profit really make between shareholder friends ;-)?
Capitalised Dividend Valuation: FY2017 perspective
Quote:
Originally Posted by
Snoopy
I am in favour of using data that goes back up to ten years, to get a view across the 'business cycle'. In the case of AWF Madison though, I feel that would be misleading today. With the addition of 'Madison Recruitment' and 'Absolute IT' to the fold, I think there is an argument for dropping all indicative data outside of a minimum five year window.
|
eps |
dps (imputed) |
2013 |
19.7 |
14.4 |
2014 |
16.2 |
15.6 |
2015 |
16.8 |
14.8 |
2016 |
16.0 |
15.2 |
2017 |
19.6 |
16.0 |
Total |
88.3 |
76.0 |
5 year Average |
|
15.2 |
For a leading market player in a nevertheless fragmented service profession I would accept a 7.5% gross dividend yield.
Implied Acceptable Share Price = (Gross Dividend) / (Acceptable Yield)
= (15.2c / 0.72) / 0.075 = $2.81
With no sales in the market today as I write this, but a bid price of $2.75 and an offer price $2.85, in these days of highly prized dividends I think AWF is trading where it should.
SNOOPY