Our obsession with dividends
Dividends were a major topic of conversation at Hellaby Holdings’ annual meeting as they are at most shareholder meetings. Hellaby’ s dividend payments have been under scrutiny for a number of years because the Shareholders’ Association has accused it of borrowing to make these distributions and the company has paid tax in advance to ensure that all payments were fully imputed. As the following table shows, dividend payments have exceeded the net operating cash flow for the group and parent company in each of the past three years. No final dividend was paid for the June 2007 year. Hellaby Holdings: Operating cash flow and dividends ($000) Net operating cash flow Group Parent Company Dividends paid 2007 7,884 5,573 10,742 2006 13,453 12,199 15,914 2005 13,236 300 18,695 2004 17,614 (1,653) 15,251 2003 18,869 5,173 10,344 Total 71,056 21,592 70,946 The parent company figures are relevant for Hellaby because it is a passive investor with interests in fully owned or majority controlled companies that are consolidated. Chairman Bill Falconer told shareholders on Friday that Hellaby had established “a dividend policy with a target of distributing 50 per cent of tax paid profit” and it “will not be paying tax in advance in order to generate imputation credits”. During question time Falconer said that he believed that Hellaby was a dividend stock. In a straw poll he asked shareholders to raise their hands if they wanted to receive a dividend, even if it was not fully imputed, or if they would prefer to wait until distributions were fully tax free. The response was 50/50 but two directors, Hugh Green and Bob Carter, raised their hands in support of the payment of unimputed distributions. Their response was important because Green owns 30.8% of Hellaby and Carter is an associate of his. This obsession with dividends is apparent at most meetings. Even at high-growth companies Rakon and Wellington Drive Technologies directors were asked about the prospects of an initial distribution. New Zealand shareholders put far too much emphasis on dividends. Investors should be willing to invest in fast growing companies that re-invest all of their earnings back in the business as well as those with high dividend yields.
Brian Gaynor, 19 November 2007
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