PIA targets stable, fully franked dividends over the coming years

Historically, Australian investors have prized stable, higher yielding, fully franked dividends stocks above all else, focusing on Australian “blue chips”.

However, with so many of these stocks now slashing dividends, investors recognise the need for alternative and more secure ways of generating fully franked dividends.

PIA not only has excellent growth prospects (as shown by its historical track record delivering 9.77% p.a.1 since Pengana took over the strategy on 1 July 2017) but is likely to be one of the most reliable vehicles in the Australian market for the generation of stable and secure fully franked dividends over many years to come.

The reliability of PIA is due to the way in which the portfolio is managed, as well as unique structural advantages inherent in the vehicle.

NAV PRE-TAX2

$1.243

SHARE PRICE

FINAL DIVIDEND

2.5 cents per share

PERFORMANCE SINCE INCEPTION1

8.0%

OUR COMPANY

A portfolio of diverse investments targeting consistent, fully franked dividends, whilst maintaining superior, and ethical, performance returns.

Growth + Yield + Stability

Historical portfolio returns of 9.77% p.a.1 since mandated

Dividend yield of circa 5% at the share price of $1.01 as at 12 May 2020, likely to be fully franked

Free cash flow yield across the portfolio companies of circa 7.1%3

Cumulative average revenue growth of 6.5%3

Gearing = 0.9%3

PE = 23x3

No of holdings/divisions = 372

Geography2 = US 39.7%, Europe Ex-UK 30.7%, Emerging Mkts 9.6%, Cash 14.8%, ROW 5.2%

In the news

PERFORMANCE

1 MTH 1 YEAR 3 YEARS 5 YEARS Since Inception1
Pengana International Equities Limited 5.01% 9.09% 7.32% 6.88% 8.01%
MSCI World Total Return Index, Net Dividends Reinvested, in A$ 3.70% 3.20% 9.75% 8.90% 7.29%
Outperformance vs. MSCI 1.31% 5.88% -2.42% -2.02% 0.72%

Performance of $100,000 invested at inception1

RISK ADJUSTED RETURNS

Since Pengana Capital took over the management of PIA’s investments (1 July 2017), the portfolio has outperformed the benchmark on EVERY DAY where the benchmark fell by more than 1.7%

Daily MSCI World < -1.7%

DIVIDENDS

Upcoming Dividends

The Board will meet in late August 2020 to approve the 30 June 2020 audited financial statements and to consider and declare the final dividend for the 2020 financial year.

PIA’s unaudited results for the 10 months to 30 April 2020 indicate that the company is well placed to fully frank a final dividend of 2.5 cents per share. This will be in addition to the fully franked, 2020 interim dividend of 2.5 cents per share paid on 30 April 2020.

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FAQ

Mr Frank Gooch, Chairman of PIA, said, “PIA is positioned to meet its dividend objective of paying at least 5 cents per share over the medium to long term. The company has total assets in excess of $320 million, no debt, investments in highly liquid global companies and a disciplined investment management team that has demonstrated its ability to deliver throughout the cycle. This is unlike many other companies that are limited in their ability to pay dividends due to capital constraints, illiquidity or debt covenants – as shown during the recent COVID-19 crisis.”

Some LIC managers are reluctant to commit to paying out consistent ongoing dividends as this may negatively impact their fees particularly in periods in which the LIC has failed to generate sufficient earnings to cover the dividend and thereby reduce the size of the company

PIA’s strategy is to generate consistent long-term returns whilst reducing volatility and the risk of losing capital. The success of this strategy has been demonstrated in the recent crisis, i.e. since January 1 to April 30 this year, the portfolio generated a 1% return1 versus a – 6% fall in the market2.

In order to pay fully franked dividends, PIA needs to satisfy two tests:

  1. Have either profits in a specific period or alternatively having profit reserves, sufficient to cover the dividend, and
  2. Have sufficient franking credits (from tax paid on realised gains on investments) to enable dividends to be fully franked.

As a listed investment company, it is impossible to guarantee having profits in a particular period. However, PIA is uniquely placed to satisfy the first test as it has $114 million of profits reserves, i.e. sufficient to pay the current amount of fully franked dividends for the next several years.

It is important to note that whilst PIA cannot guarantee it will satisfy the second test, the company anticipates that it will have sufficient franking credits to pay fully franked dividends. The reason for this is that:

  • Our holdings are highly liquid and therefore should be capable of being traded efficiently in order to realise investment gains
  • Due to the diversification of the portfolio, historically, we have always had a proportion of holdings generating positive returns in all years. Going forward, we intend to actively realise a proportion of these profits
  • Holding periods are generally medium-term and so we have flexibility across time periods as to when we realise gains and losses
  • The strategy is far more likely to result in the sale of stocks that make large gains (i.e. that reach our price targets) as opposed to stocks that are in a loss position

Last year, PIA announced the reset of the half-yearly dividend to 2.5 cents in order to provide more certainty over the dividend as well as to provide room for additional capital growth in the PIA shares. Increasing the level of franking via a change in the investment strategy is viewed by the PIA Board as increasing the attractiveness of PIA shares.

Russel Pillemer said, ”We think PIA is an ideal vehicle for investors who are seeking investments with an ability to generate good long term, relatively low risk, capital appreciation with highly stable dividends that are likely to be fully franked.

There are very few companies that offer investors such a compelling combination of income and capital growth prospects and we think that PIA has the potential to make a significant contribution to investments portfolios. In addition, as PIA is currently trading at a discount to its underlying net asset value, incoming investors have the prospect of earning additional returns in the event that the discount is reduced.

In the 10 months to 30 April 2020, the investment portfolio has returned 8.2%1 compared to the benchmark return of 2.4%2.

PIA’s unaudited results for the 10 months to 30 April 2020 indicate that the company is well placed to fully frank a final dividend of 2.5 cents per share. This will be in addition to the fully franked, 2020 interim dividend of 2.5 cents per share paid on 30 April 2020.

Russel Pillemer said, “It is also pleasing that the investment manager has been able to realise investment gains even in a period in which global markets have been severely disrupted by COVID-19. This should enable a final dividend of 2.5 cents per share to be fully franked.”

The Board will meet in late August 2020 to approve the 30 June 2020 audited financial statements and to consider and declare the final dividend for the 2020 financial year.

More Information

For all General Enquiries you can call us on (02) 8524 9900 or email clientservice@pengana.com

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