Melbourne based LIC Mirrabooka Investments has given us the first hint of what the June 30 reporting season is going to be like for the sector – not pretty, and it has also given us a heads up about the wider market and especially the ASX 200 – not pretty either.
Mirrabooka yesterday revealed a 28% slump in net profit of $6.4 million for 2019-20, down from $8.9 million the previous year.
The sharp drop was due to income from dividends and distributions falling from $9.5 million to $6.9 million as companies have suspended or cancelled dividends.
With the June 30 reporting season almost upon us, lower dividends are going to become the norm.
In fact, with another round of reductions or suspension of final dividends by some companies (in travel tourism, aviation, transport, property, and some sections of the retailing sector) a weak result for the next six 12 months for LICs like Mirrabooka is in store.
Despite the lower-income, Mirrabooka has at least not followed the trend from companies in its portfolios and used the lower earnings to reduce or drop dividends.
The company maintained final dividend at 10 cents a share for the year subsidised by capital reserves.
(Last year shareholders received an extra 10 cent special dividend because of the fear the ALP would win the Federal Election and change the rules on imputed dividends).
The final was a steady 6.5 cents a share after a steady interim of 3.5 cents a share.
“We often build up reserves through capital gains and we can pay dividends out of that during these times that it becomes particularly valuable. Now is the time to keep using them,’’ managing director Mark Freeman explained in yesterday’s release
Mirrabooka further reduced the size of its investment portfolio in the year with a focus on quality companies and avoiding investments where elevated valuations heightened investment risk. This saw holdings reduce from 63 to 52 over the year.
“Funds raised from this activity have been reinvested in a number of attractively priced discounted capital raisings undertaken in response to the COVID-19 crisis, as well as adding and increasing existing holdings in high-quality companies as market volatility provided attractive opportunities.
But directors said that given the sharp rebound in equity markets we intend to remain patient and disciplined. with the company’s cash position at June 30 of $20.2 million equal to 5.2% of the portfolio.
And while the company is maintaining its dividend reinvestment plan (there is no discount), it is also introducing a dividend substitution plan.
The company said full details are on its website for the plan which will enable shareholders to take the dividend in ordinary shares at a close to the market price for the pricing period in early August. There will be no discount (as with the DRP) and the company says it has a tax ruling that shares issued under this plan do not result in taxable income. The hitch is that there are no franking credits with this distribution which would seem to be a bit of a negative.
Mirrabooka shares rose 1.2% to $2.50 yesterday. They are still down around 10% year to date.