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Punters can see pickings in high yield stocks

Friday 28th July 2000

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Five property investors made the list, which shouldn't surprise market watchers, PETER V O'BRIEN writes

There are good pickings available on the sharemarket for private investors looking for high gross dividend yields.

The table, extracted from The National Business Review's sharemarket statistics at the end of last week, shows 14 companies with a gross dividend yield of more than 10%

A similar exercise in NBR (March 19, 1999) had 20 such yields but some companies' share prices have been re-rated since then.

The table excludes yields on convertible note issues, which were included last year.

It also excludes situations where shares were partly paid, because the final installment could have a substantial effect on the yield.

Dividend yields can be high for several reasons:

  • market views that current dividends are unsustainable;
  • profit projections are pessimistic:
  • particular companies are unfashionable; and
  • the company and/or industry does not attract institutional support.
No market watcher would be surprised to see five property investment development companies in the table.

The sector's yields follow trends in interest rate yields because the companies usually pay out most of their net profit in dividends, relying on rent reviews and asset revaluations to maintain the shares' capital value and appreciation.

That can come unstuck at times but investors seem to have problems in distinguishing between companies.

The matter was referred to last week at the annual meeting of the Property Leaders group of companies, comprising Property Leaders Australia, Property Leaders Australia and New Zealand, and Property Leaders New Zealand.

Managing director Anthony Quirk said it was somewhat of an understatement to say it had been a difficult year for property companies in New Zealand.

"Rising interest rates, increased vacancy rates and pressure on rental levels have all contributed to a disappointing performance by New Zealand commercial property generally.

"These factors have contributed to a disappointing performance by New Zealand property companies with a commercial property orientation."

Mr Quirk distinguished the companies: "It is unfortunate the commercial office area is the one that many investors use as a proxy for the overall property sector in this country.

"In fact, industrial and retail property has performed considerably better over the past year.

"For example, the New Zealand industrial property sector has had a reasonable performance over the past 12 months, with demand for such properties remaining reasonably high."

"This is reflected in the fact that Property for Industry was the only positive performing property security in the New Zealand sharemarket over the year to March 31, 2000."

The three Property Leaders companies had gross dividend yields on the 7%+ range last week and Property for Industry's gross yield was 9.2%, all four being under the 10% cutoff point used in the table.

Restaurant Brands' inclusion in the table with a gross yield of 12.2% was worth noting.

The franchised food and beverage company reported last week on 29 weeks ended June 12.

Net profit was $7.4 million, an increase of 5.4% on the corresponding period of the previous year.

The company maintained its interim dividend, so the gross yield is a fair representation of the likely yield situation for the full year.

Equity investment is more risky than holding fixed interest securities but effective higher yields on the former if dividends carry imputation credits help to offset that matter.

Cavalier Corporation, Hellaby Holdings and Hallenstein Glasson Holdings gross yields were good, particularly as the companies have good records in terms of operations and profitability.

Sky City has also been a good performer and the actual dividend paid in the past two half years in monetary terms was 50c a share.

Designer Textiles' 18.6% gross dividend yields could be related to reaction to the company's comments in the report for the six months ended December that there were price pressures from Asian imports into the Australian clothing market.

Managing director Kerry Harding said experience gained in trading through harsh business conditions in New Zealand during the late 1990s was being used to deal with the impact of excess Asian imports on the company's Australian operations.

Yields in the table were confined to gross returns over 10% but it can be noted Telecom had a gross yield of 9% last week.

The figure could be higher or lower now but last week's figure was a useful return, despite views that competition and possible limited profit growth potential could affect the company's prospects.

Gross dividend yields above 10%CompanyYield
Cavalier11.6
CDL Investments16.9
Capital Properties13.4
Designer Textiles18.6
Force15.3
Hellaby Holdings12.3
Hallenstein Glasson13.1
Kiwi Income11.2
Mr Chips12.7
National Property10.9
Newmarket Property18.2
Restaurant Brands12.2
Sky City10.5
Steel & Tube10.2
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