Listed investment company Djerriwarrh has taken the axe to its final and full-year payout to shareholders, despite only reporting a modest 4.1% drop in earnings for the year to June.
Like its stablemate, Mirrabooka Investments last week, and another stablemate, Australian Foundation Investments next Monday Djerriwarrh blamed the slide in earnings for the year to June on a fall in income from its investment portfolio thanks to the impact of COVID-19.
In the outlook commentary for 2020-21 directors hinted strongly that the company faces another period of pressure on income flow from the portfolio.
“Moving into this financial year, the outlook for company dividends, in particular, is likely to be under pressure, as economic conditions remain very uncertain.
“However, the principle of targeting an enhanced yield versus the ASX 200 Index remains a core investment objective. At this point, the Company also continues to have a strong franking position as well as a healthy level of reserves,” directors said in trying to reassure investors that the prospects of dividends this financial year remained positive after the big cut to 2019-20’s payout.
Profit was $32.9 million in full-year unaudited results, down from $34.3 million in 2018-19.
The final dividend has been cut 48% to 5.2 cents a share, down from a final dividend of 10 cents in 2018-19.
That means total payout for the 2029-20 year is 14 cents a share, down 33.3% from 20 cents last year.
In a letter to shareholders with Monday’s result, the company said “any income-focused stocks, which would normally do well in difficult economic conditions severely underperformed”.
Djerriwarrh’s dividend income dropped from $39.7 million to $28.6 million as companies deferred or reduced dividends.
“Dividend income for the financial year, particularly in the second half, was impacted by the deferment and reduction in the dividend of three of four major banks and reduced dividends from Alumina, Sydney Airport and James Hardie Industries.”
“In addition, last year’s figure included special dividends from BHP, Wesfarmers, and Mirrabooka Investments, none of which were repeated this financial year.’’
Like its stablemate Mirrabooka, Djerriwarrh is dipping into reserves to boost the final dividend, which would have been 4.9 cents per share without any subsidy from the balance sheet.
During 2019-20 the investment company said it sold out of AUB Group, Ansell, Worley, and Treasury Wine Estates and reduced its exposure from 59 companies to 49 Mirrabooka did something similar).
Total portfolio return for the 12 months to 30 June 2020 was -11.5% compared to a benchmark of -6.6 percent.
Djerriwarrh attributes the underperformance to its large exposure to banks, options in CSL, and weak performances in Oil Search and Woodside.
The shares fell 1.5% $2.61 yesterday.