Contact Energy - CEN Chart

[sb9]

Yep, got the money credited last night, very happy.

Very good post Hoop, not very good with charts and TA but good insight nevertheless.

My gut feel is once we know about Tiwai point, things will be on the move. With FY results round the corner, I wouldn't be surprised if the full year divvy is slightly higher than what's been...

[Hoop]

Hi Hoop, I don't follow CEN but I notice there you said there was a recent 50 cent divi.As the SP gets closer to $5, a 10% divi looks attractive.

We all tend to get very excited when we hear special dividend, I guess its a behavioural thing rather than a financial thing. After 40 years in and out of the stockmarket game I get very wary as to why a special dividend gets announced..I treat special dividends as an exercise in robbing Peter to pay Peter (not Paul) and if we swap the wording "giving a special dividend" to reducing shareholder assets to give to shareholders the excitement somewhat lost...eh?

I'm not sure of the imputation but 19% rings a bell, therefore high income earners being taxed more than 19% will lose a small part of their CEN asset to the taxman, definitely no excitement now.

OK... there are times when a special divy is beneficial to the shareholder...Off the top of my head a few scenarios spring to mind:-
1....Defence mechanism to make a company less financially attractive to a possible hostile takeovers
2....The NZ imputation "use it or lose it" clause when a controling shareholder is planning to sell down or out.. (The market thinks this is CEN's reason..unofficially denied )
3....Company Management with a reputation of cash burn and capital destruction and shareholders view their liquid shareholder assets would be better ultilised by them rather than left to Management to waste.
4....Company can't find opportunities to expand within their markets (common thread) [CEN reason which the market doesn't totally believe, thereby creating a question mark to Management ability].
5....Growing companies paying out to maintain their gearing ratio sweetspot...Not sure if this CEN announcement of new finance debt packages yesterday after a shareholder payout is a good idea as I perceive CEN is signaling future low growth..My opinion, which could be wrong, is low growth companies within a low inflationary environment should "make Hay while the sun shines" (reduce debt)...maybe Snoopy or Winner could apply their expert opinions here.
6...probably some other scenarios...

[workingdad]

Yep, got the money credited last night, very happy.

Very good post Hoop, not very good with charts and TA but good insight nevertheless.

My gut feel is once we know about Tiwai point, things will be on the move. With FY results round the corner, I wouldn't be surprised if the full year divvy is slightly higher than what's been...

Yep I agree, Tiwai point uncertainty is a big factor for all the gentailers. Aluminium prices are low but the NZ dollar dropping would be of benefit to them.

There is a school of thought they they will keep the 400MW and hunt for a deal on the other 172MW. We will know in a week..... It reminds me of my nemisis hole on a certain golf course, looking at it after a decent tee shot its death or glory to go for the green on a par 5 - with regards to CEN, I am going for glory haha

[Joshuatree]

Competition is heating up amonst the retailers of electricity.New "wholesale" outfits are springing up. In tauranga we now have re 12-15 companies trying to get us onboard and the incumbent Trustpower has actually lost more then most in the last month

[Snoopy]

Its a learning curve and I am still happy with the risk versus reward at present and think they are already oversold. With the numbers of shares being sold there is an equal number of buyers and throwing a bit of a guess out there that some large buys will be coming soon as the value becomes tempting to pass up.

I look at the share price when they did make the statement about overseas investment, share price took a hammering but still meet resistance mid $5's then the bonus divy was announced followed up by yesterdays statement of 100% earnings distribution, possible buy backs and monthly report with increasing demand and a cold start to the winter.

Flip side, potential tiwai (my take is business being business playing a hard game to get a better pricing structure) and even Origin selling up which I cant see them doing unless the price is right ruling out on market.

I have only been doing this share market thing for 2 years so my experiance is very limited but my feeling is things arent as good as they were, CEN is something I have parked some money in and could be there for quite some years, the economy is not looking great, electricy is a stable earner in a poor economic climate which is my rationalle.

I will certainly feel more confident in this if the price starts coming back up and feel free to educate me further, I am keen to learn and appreciate it

Workingdad, buying shares in CEN is not a get rich quick strategy, and I think you know that. Since you are looking at staying in for several years, I feel it is worth looking a little further back that Hoop's one year chart.

I have been a CEN shareholder from the beginning, which is over 15 years now. I have never sold a CEN share. However my 'median holding time' is only four years. That indicates I have been buying more in recent times than earlier years. I am invested in Contact primarily for the dividend stream. The dividend stream is left out of most charts. If the company's profit steam is not growing in the medium term, then you should not expect the share price to rise in the medium term. Given the non growth outlook for all the gentailers since the GFC, this premise applies to Contact Energy.

Back on 30th June 2011, the share price was $5.36.

As I write this the share price on 24-06-2015 is $5.15. Superficially this is showing a loss over four years of 21cps. Not a great result. However, in the intervening time the following fully imputed dividends have been declared, and paid:

12, 11, 12, 11, 14, 11, 15, 11, 50

That adds up to $1.47. (1)

The first three of those dividends were paid to me when the dividend reinvestment plan (DRP) was running. I took those as shares rather than cash. So did many others. As a result of the DRP the total number of shares on issue increased from 695.068m to 733.308m, an increase of 5.5%. My own number of shares went up by 7% over that time because of the DRP. So I had an extra 'gain' of shares over and above the average gain of:

7% - 5.5% = 1.5%

This is extra value attributed to me in excess of the average punter. With a CEN share price today of $5.15, in dollar terms this 'extra value' is

0.015 x $5.15 = 7.7c (2)

This means my total income gain over four years is (1) + (2):

147 + 7.7 = 154.7c

Removing my capital loss over the period of 21c, my gain reduces to 133.7. Divide by 4 to get a per year gain per share over the four year median holding period of 33.4cps.

Based on a share price of $5.15 today, this represents a net yield of:

33.4 / 515 = 6.5%

Using a 28% company tax rate, the gross annual average yield is

6.5% / (1-0.28) = 9.0%

This is a really good return. Yet if you had just looked at the chart, you might convince yourself you had lost money. This kind of thing is why when it comes to income investments, I would never recommend using a chart.

SNOOPY

[Snoopy]

Hi Hoop, I don't follow CEN but I notice there you said there was a recent 50 cent divi.As the SP gets closer to $5, a 10% divi looks attractive.

The special dividend was a result of accumulating tax credits for several years. The ex-dividend date has now past. So the 10% dividend yield, based on the special dividend alone will not be there in future years.

SNOOPY

[Snoopy]

We all tend to get very excited when we hear special dividend, I guess its a behavioural thing rather than a financial thing. After 40 years in and out of the stockmarket game I get very wary as to why a special dividend gets announced..I treat special dividends as an exercise in robbing Peter to pay Peter (not Paul) and if we swap the wording "giving a special dividend" to reducing shareholder assets to give to shareholders the excitement somewhat lost...eh?

You can think of a 'special dividend' as equivalent to a return of capital if you like.

I'm not sure of the imputation but 19% rings a bell, therefore high income earners being taxed more than 19% will lose a small part of their CEN asset to the taxman, definitely no excitement now.

The company tax rate is 28%. So a person on a 30% tax rate will have 2% of the dividend deducted at withholding tax (30% - 28% = 2%). Tax has already been paid on the special dividend money when Contact first earned it. This is why the imputation credit exists. If no tax had been paid there would be no imputation credit.

The net result is that 30% taxpayers lose an extra 2% of that 'dividend capital' (if you want to think of the special dividend as capital) when that dividend is paid. Not a huge deal.

OK... there are times when a special divy is beneficial to the shareholder...Off the top of my head a few scenarios spring to mind:-
1....Defence mechanism to make a company less financially attractive to a possible hostile takeovers
2....The NZ imputation "use it or lose it" clause when a controling shareholder is planning to sell down or out.. (The market thinks this is CEN's reason..unofficially denied )
3....Company Management with a reputation of cash burn and capital destruction and shareholders view their liquid shareholder assets would be better ultilised by them rather than left to Management to waste.
4....Company can't find opportunities to expand within their markets (common thread) [CEN reason which the market doesn't totally believe, thereby creating a question mark to Management ability].
5....Growing companies paying out to maintain their gearing ratio sweetspot...Not sure if this CEN announcement of new finance debt packages yesterday after a shareholder payout is a good idea as I perceive CEN is signaling future low growth..My opinion, which could be wrong, is low growth companies within a low inflationary environment should "make Hay while the sun shines" (reduce debt)...maybe Snoopy or Winner could apply their expert opinions here.
6...probably some other scenarios...

As Hoop says there are many reasons why a special dividend might be paid. If Origin were a seller they would not admit it publically. To do so could affect the share price and the ultimate sale price Origin might get. So Hoops reason (2) is my preferred explanation as to why the special dividend was paid.

If CEN management truly can't find alternative investments, then paying the special dividend was the reponsible thing to do. (Hoop's reason 4) I would not agree that this implies Contact's managment has questionable ability though.

Utility type companies can carry a higher level of debt than others because of the greater certainty of cashflows. As to whether Contact are paying the special dividend to be 'capital efficient' (Hoop's reason 5) I am not sure. But on one thing I do agree with Hoop. I do like to see a company keep their overall debt levels low.

SNOOPY

[sb9]

Good posts Snoopy...

[workingdad]

Workingdad, buying shares in CEN is not a get rich quick strategy, and I think you know that. Since you are looking at staying in for several years, I feel it is worth looking a little further back that Hoop's one year chart.

I have been a CEN shareholder from the beginning, which is over 15 years now. I have never sold a CEN share. However my 'median holding time' is only four years. That indicates I have been buying more in recent times than earlier years. I am invested in Contact primarily for the dividend stream. The dividend stream is left out of most charts. If the company's profit steam is not growing in the medium term, then you should not expect the share price to rise in the medium term. Given the non growth outlook for all the gentailers since the GFC, this premise applies to Contact Energy.

Back on 30th June 2011, the share price was $5.36.

As I write this the share price on 24-06-2015 is $5.15. Superficially this is showing a loss over four years of 21cps. Not a great result. However, in the intervening time the following fully imputed dividends have been declared, and paid:

12, 11, 12, 11, 14, 11, 15, 11, 50

That adds up to $1.47. (1)

The first three of those dividends were paid to me when the dividend reinvestment plan (DRP) was running. I took those as shares rather than cash. So did many others. As a result of the DRP the total number of shares on issue increased from 695.068m to 733.308m, an increase of 5.5%. My own number of shares went up by 7% over that time because of the DRP. So I had an extra 'gain' of shares over and above the average gain of:

7% - 5.5% = 1.5%

This is extra value attributed to me in excess of the average punter. With a CEN share price today of $5.15, in dollar terms this 'extra value' is

0.015 x $5.15 = 7.7c (2)

This means my total income gain over four years is (1) + (2):

147 + 7.7 = 154.7c

Removing my capital loss over the period of 21c, my gain reduces to 133.7. Divide by 4 to get a per year gain per share over the four year median holding period of 33.4cps.

Based on a share price of $5.15 today, this represents a net yield of:

33.4 / 515 = 6.5%

Using a 28% company tax rate, the gross annual average yield is

6.5% / (1-0.28) = 9.0%

This is a really good return. Yet if you had just looked at the chart, you might convince yourself you had lost money. This kind of thing is why when it comes to income investments, I would never recommend using a chart.

SNOOPY

Thank you Snoopy, its a great way to look at it also. I dont think theres a lot of get rich quick in trading without risk and experiance, breaking even while learning the trade would be adequate, for me I am up at present 12% over the 2 years (certainly been up more at one stage and this 12% is as low as its been in the last 6 months or so), theres been some moments of sheer ecstasy and of course some days where the only thing to help was some bonded jim beam

Had you sold CEN when it was $6.50 before going ex divy you could add another 85c per share to that too but assuming you are keeping them for the long term divy also. As you say not a growth company but its boring old electricity.....

I am not sure what a lot of others do but I like to buy and hold some like the CEN and have a play with some others but not throwing a lot of $ around while I get a feel for it all.

The forum has been a great source of learning and I sat back and read and watched quietly for a while, even now I am all to aware of my limitations and the goal is to avoid looking like a fool. The death or glory comment may come back to haunt me

[workingdad]

I am questioning my sanity..... looking at buying more