Monday, March 15, 2010

Share Investor Short: Warehouse Group yield worth a look - A second look



I wrote about this back in September 2009 just after the 2009 full year profit was announced and a 15.5c dividend was declared. The share price was NZ $4.25 at the time.

The WHS 2010 half year profit was released last Friday and a 17c dividend was declared. The current trading price of WHS shares is $3.90 so clearly the opportunity this time is even better than last year.

It is called dividend stripping.

Dividend stripping* is something worth doing. That is, getting in early when a good dividend is announced and riding the share price upwards before the dividend is paid or holding on to collect the dividend then ditching the stock, depending on how you think the market will treat the company post dividend.

I may or may not have done this over the years and if I did it certainly wasn't my intention to do so, yeah OK.

The Warehouse have been increasing dividends of late because of unused tax credits held by them and a better looking cash flow situation.

With cash flows up considerably this year the dividends are now rolling in again.

If you add the 30% imputation credits and are able to use them to offset taxes then you are in for a payout of :

17 c dividends + 5.11c tax credits = 22.1c , which equates to around a 5.5% gross return at the market share price on Monday 15 March of NZ$3.90 - the net return is obviously higher if you are able to fully use the tax credits.

An excellent short term payout for doing next to nothing and it is better than a term deposit because it does not take a full year to payback.

There is also the probability that those after the dividend will push up the stock price to enable you to get out with a good capital gain before the dividend is paid, if you wish to do so.

Of course, and I have to get this in before I wrap it up. If you are a long-term shareholder in the company your return for the year would have been a 32.5c per share net dividend and the possibility of more than 10c in tax credits - a plus 10% net return for the year based on my share purchase price.

Long term wins again but who says you cant have the best of both worlds!

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* Of course as one reader pointed out in September 2009, the process of dividend stripping, if the intention is to do that, the capital gain that you make is taxable.


The Warehouse Group @ Share Investor

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