ARG - Argosy Property.

[Snoopy]

ARG is paying 4 x 1.6375 cent quarterly dividend payments = 6.55 cps. On $1.38 closing price today that's a net tax paid yield of 4.746%. Its a PIE (Portfolio investment entity) so these are fully tax paid dividends and regardless of one's personal tax rate an investor pays no more tax on these distributions. A fully tax paid yield of 4.746% is the same as a 7.08% gross yield for a 33% taxpayer (4.746 / 0.67) or a 7.78% gross yield for a taxpayer with a marginal tax rate of 39%, (over $180,000 personal income) (4.746 / 0.61).

The fourth quarter dividend for FY2022 is only a promise. It has not been paid yet. But we will go with your assumption that it is 1.6375c and not 1.6125c which woudl match what happened last year. Given that assumption I do not have a quibble with your maths. Then you go on to say something extremely perceptive (my italics)

"A fully tax paid yield of 4.746% is the same as a 7.08% gross yield for a 33% taxpayer (4.746 / 0.67) "

"The same as a 7.08% gross yield " is exactly the right way to phase things. Because if you had asked me who pays the tax amounting to 7.080%-4.746%= 2.334% amounting to 2.334%/7.080% = 33% of the gross payout deducted as tax, then up until last week I would have told you Argosy. In addition Argosy, in normal (non PIE) circumstances, would also deduct a withholding tax to make sure that I 'the shareholder' ended up being taxed at the right rate (which is 33%, because the company tax rate is 28%). However, this is the wrong answer.

If you look at post 409 you will see that the imputation rate paid on all dividends over the year was just 4.8% out of a possible total of 28% (if Argosy was paying tax at the full corporate rate). So the correct answer to my question is that no-one paid this missing tax the Argosy shareholders have been gifted with of the PIE status of Argosy - because the income wasn't taxable in the first place. OK that is a slight simplification of the truth. A 4.8% imputation rate represents 4.8%/28% = just 17.1% of a normal company tax liability. This means the 'strictly correct answer' to my question is that Argosy paid 17.1% of the 'full imputation tax due' and nobody paid the other 82.9%, which evaporated in a puff of smoke as a 'phantom tax.'

If all this sounds like nit picking, it is nit picking for a good reason. From a 33% tax rate shareholder perspective, our shareholder receives a 'gross dividend equivalent return' of 7.08%. But the actual 'gross dividend return' as listed on the NZX website is 5.004%, which despite being the correct 'gross dividend return' is actually very misleading of the gross return shareholders can expect, and considerably understates the 'gross shareholder return'.

The moral of this story is that if you use the term 'gross return' with a PIE, it pays to be very prescriptive of what you are talking about.

SNOOPY

[Beagle]

To me the PIE situation underscores the merits of investment in ARG. 7.08% effective gross rate and a decent discount to NTA along with the knowledge that ~ 50% of their asset are in the most favored industrial sector

[Beagle]

To me the PIE situation underscores the merits of investment in ARG. 7.08% effective gross rate and a decent discount to NTA along with the knowledge that ~ 50% of their asset are in the most favored industrial sector along with a 16% discount to NTA seems like a pretty good deal to me.

[SPC]

You can say that again 😉
Happy holder since 2010...

[ronaldson]

It is correct that the four quarter dividends for y/e 31 March 2022 are scheduled to be paid at 1.6375cps, but they are always declared and paid in arrear for the prior quarter just past, so the next payment in June will be at that rate and be the '' final " for that 21/22 annual period. That will give the stated 6.55cps for that 12 month period, on which yield can be calculated if you disregard the timing issue.

Thereafter the Company has committed to adopting an AFFO based dividend policy, where the Board cannot state with any degree of certainty their intentions in advance other than to confirm a policy of paying a particular % of AFFO and at least the "final " dividend each year is likely to be tweaked to reflect the true AFFO financial result. Some projections/graphs were provided in the most recent half year report ( or was it y/e 2021? ) which were indicative in my view that a higher total cps annual dividend going forward was not only plausible but likely. Of course there are the impacts of Omicron and rising interest rates to consider but in the near term at least interest rates are mostly hedged and there are minimal vacancies with most rentals CPI adjusted on review, which bodes well.

So it is the forward yield which is more relevant than the historic yield, given the announced change in dividend policy. It would be good receive the thoughts of Forum members about that.

[Waltzing]

You never know but after this morning announcement by Jamie D COMP PROPS might have a low SP to NTA for a while. Could see some shocks in the market if FED has to tighten more than expected into 2024. Remember it was all temporary?

These SP's could be hit for a while to come.

The only oddity was the high SP handles in 2007-08 in relation to OCR rates.

Wonder if MR B has considered this but perhaps it was just the effect of securitization but that was a US market phenomenon and should not have effected NZ.

Was it simply a side effect of human emotion in relation to markets and wont be a factor this time round.

If it was simply a one off then COMP PROP sp handles could stay low for a few years to come .

Higher DIV offset by rising interest rates.

If that happens its just keep accumulating Mr B?

Would rather accumulate this if SP stays low and DIV increases then go retail.

A Proxy for the market without having to buy the underlying individual shares. Also gets you a return from corporate and govt rental and private industrial and commercial business sectors.

Can it get any better than that MR B?

Almost as good or complimentary to WHS with less risk for a slightly lower DIV.

[Beagle]

Yes there's no shortage of bricks for the wall or worry however I think ARG are well positioned and investors look to be earning somewhere around 5% net in FY23. I think that's reasonably attractive but there's no obvious catalyst for the shares to be rerated anytime soon. I think its a yield story.
Page 30 of last years presentation covers off the change in dividend policy. I think its more than a little opaque as their new policy is anywhere from 85-100% of AFFO. A fairly wide range there. http://nzx-prod-s7fsd7f98s.s3-websit...406/346272.pdf

No question that we're in for a fairly long period of enduring inflation, I simply don't buy the argument its transitory anymore. Rising long term interest rates are also a headwind for Cap rates which will impact valuations in due course, maybe not this year, so I foresee the current discount to reported NTA as simply front running that rising cap rate outlook.

I think this one comes down to are you happy with little prospect for share price gains in the medium term and simply accepting a ~ 5% net return.

[Waltzing]

" little prospect for share price gains"

no reason to go overweight then....

a back stop for DIV with lower risks only.

a counter balance hedge then.

CNBC inflation being described as "supercharged"

[Beagle]

Yeah I think that sums it up. A modest portfolio allocation to this one makes sense to me. I am currently well and truly underweight in this so might look to adjust that after the annual result.

[RTM]

Agree we are in for some enduring inflation.

Won't all of Argosy's assets inflate in value more or less at the inflation rate over time ? It mightn't be instantaneous, but is that an issue if one is invested for the longer term...say > 10 years (all going well )
Meaning it would be a lot better to hold them (and here I really mean any REIT) rather than cash ?

No question that we're in for a fairly long period of enduring inflation, I simply don't buy the argument its transitory anymore. Rising long term interest rates are also a headwind for Cap rates which will impact valuations in due course, maybe not this year, so I foresee the current discount to reported NTA as simply front running that rising cap rate outlook.

I think this one comes down to are you happy with little prospect for share price gains in the medium term and simply accepting a ~ 5% net return.