HGH - Heartland Group Holdings

[winner69]

Some of us old timer Heartlanders are enjoying a much higher [on average holding cost] divie yield..... lol.

I can’t work my yield out — calculator goes wonky when I punch in 13.16 / -35

[Snoopy]

Year	Dividends Paid 'per share'	Significant Event During Year'
FY2014	Not in Calculation	1st April 2014: Seniors 'Reverse Mortgage' Business Acquired
FY2015	3.5cps + 3.0cps	10th September 2014: invests in Harmony P2P startup
		28th October 2014: Credit rating upgraded from BBB- to BBB (Fitch Ratings)
FY2016	4.5cps + 3.5cps
FY2017	5.0cps + 3.5cps
FY2018	5.5cps + 3.5cps
FY2019	5.5cps + ?.?cps
Average FY2015 to FH2019 inclusive	8.33cps

I have chosen to use the last four and one half years of operation as indicative, as these years include the full contribution of the Reverse Mortgage Portfolio, a critical component of Heartland going forwards.

Plugging in a representative yield of 7.5%, one that IMO represents an appropriate risk for the ups and downs of the banking cycle of Heartland in its current form, we can now arrive at our 'Capitalised Dividend Model' valuation

(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

8.333c / (0.72 x 0.075) = $1.54

This $1.54 valuation is measured at the average point in the business cycle. My rule of thumb is that over the business cycle the actual share price will fluctuate between 80% and 120% of capitalised dividend fair value. This gives a target range of $1.23 to $1.85.

But if the share does drift back towards my fair value mid point of $1.54, that might be the time to -finally- add HBL to my portfolio.

For those who have forgotten what I posted last October

Then you'd we wise to wait until a bottom SP was confirmed, possibly locking in an even better yield, especially if one thinks a recession is around corner. No point imho in rushing into these things until there's an obvious SP up trend delivering tasty yields and capital gains. Then again maybe you picked the bottom, there's a recent $1.32 price support precedent that suggests you might have. Not infallible, but worth keeping an eye on. Personally I'd rather leave a decision until the last minute.

A dividend hound following your instructions would never invest Baa-Baa. There is always a possibility of locking in a better yield. IMO you have to decide what yield is acceptable to you and make your investment decisions based on that. There is no 'right answer' to this question. It is a matter of individual judgement that each shareholder must make for themselves.

In my case I try to look over the business cycle because the chances are I will hold over the business cycle. I want to buy at the lowest price (highest yield) I reasonably can. Buying just before a recession (share prices are forward looking) gives me the best opportunity to do just that. Any share price can always go up, go down or stay the same. Buying when a trend reverses will guarantee you do not get in at the lowest price and does not guarantee that the aforementioned trend will not suddenly reverse again. At that point a trader might sell, possibly at a loss and certainly incurring brokerage - trading their profits away. There are no guarantees in this game and with the benefit of hindsight I could have got a better yield on my HGH shares that I bought. But do I regret buying a couple of weeks ago? No. Because:

1/ No-one has the benefit of hindsight at the time they buy. AND
2/ I was very happy with the yield I got.

You have to remember that the market is a mechanism to offer you deals for buying and selling your shares. There is no compulsion to act on these daily offers to buy or sell. 99% of shareholders don't on any particular day.

SNOOPY

[oldtech]

Snoopy, in your formula above you write:

(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

8.333c / (0.72 x 0.075) = $1.54

Sorry if I'm missing something, I don't see where the 0.72 comes from. Could you explain please, for the benefit of an old tech?

[Snoopy]

Snoopy, in your formula above you write:

(Representative Dividend per Share) / (Acceptable Gross Yield) = Share Price (an algebraic manipulation of: Dividend per Share / Share Price = Yield )

8.333c / (0.72 x 0.075) = $1.54

Sorry if I'm missing something, I don't see where the 0.72 comes from. Could you explain please, for the benefit of an old tech?

Thanks for the question oldtech. The 8.333c is a representative dividend figure with tax paid. If you go down to a bank and put money in a term deposit the rate they quote to you will be before tax is paid. So to get a better 'like with like' comparison I prefer to look at dividends before tax is paid. The company tax rate in New Zealand is 28%. That means you keep 72% of your return and the government keeps 28% (28% + 72% = 100%). The factor '0.72' in the denominator of my calculation is therefore the factor I am using to convert my annual indicative dividend figure of 8.333c to the 'before tax dividend figure' of.

8.333c / 0.72 = 11.57c (note 11.57c x 0.72 = 8.333c)

The technical term for 'before tax dividend' is the 'gross dividend'. The after tax dividend figure of 8.333c is normally termed the 'net dividend'.

HTH

SNOOPY

[bull....]

im thinking div cut is on the cards

[Snoopy]

im thinking div cut is on the cards

The first half year paid dividend was 5.5c. If the second half dividend of 3.5c is maintained, that gives a full year dividend of 9.0c. I am modelling a business cycle dividend 8.33c. That represents a 7% dividend cut from current levels. That means I am modelling a dividend cut (which doesn't mean I necessarily expect it) and the investment case for HGH still stacks up.

SNOOPY

[winner69]

im thinking div cut is on the cards

Never, never will happen

Profits up - divies up ....even though they haven’t increased them for a while

Bull......this company has a record of ever increasing fully imputed dividends

[bull....]

Never, never will happen

Profits up - divies up ....even though they haven’t increased them for a while

Bull......this company has a record of ever increasing fully imputed dividends

regulatory costs are increasing in aus for bank, finance related businesses look at all the commentary in aus about increased costs going forward. in nz rbnz capital requirements im thinking hgh need to be cautious until everything known. if div goes up i be surprised and guess it will be a very good div yield company

[Balance]

Never, never will happen

Profits up - divies up ....even though they haven’t increased them for a while

Bull......this company has a record of ever increasing fully imputed dividends

Talked to a Sydney based fundie 2 days ago who cut their position in HGH last year.

Two reasons - they have enough problems with their own banking exposure without taking on any in NZ but they are also very concerned about HGH's exposure to the Oz property market.

https://www.smh.com.au/money/investi...14-p50xpc.html

Let's hope HGH make a real effort to explain their exposure and sensitivity to that market - in simple terms and in plain English!

Otherwise, there will be only Kiwis left in this stock as the Ozzies continue to sell down and out.

[winner69]

The Heartland 2022 Notes priced at 3.3% at the moment

Dividend yield 6.7% - gives you some idea of the ‘risk’ the market sees with holding the shares