Monday
Morsels: BHP Billiton have released a demerger update, along with some
management re-shuffling as the deckchairs are re-arranged and occupied. This statement
confirms that the demerger is on track for completion in the first half of
2015. They have also started to flesh out a new dividend policy. They are
saying that BHP Billiton will not re-base its dividend post demerger “implying
a higher payout ratio”. Following demerger they remain “committed to steadily
increasing or at least maintaining its dividend per share in US dollar terms”.
Further reference is also made to “cash generating capacity” being key to the future
dividend policy. Now, BHP Billiton today yields 4.5% at 1640p (pretty much a
five year low). When Newco is spun out, the dividend yield on BHP will go up
(it’s the maths….). You will then also hold a piece of paper in Newco, for
which I have not seen a dividend policy yet, but it seems reasonable to expect
something. So total dividend streams could get a leg up. This relative
confidence from BHP comes at a time of weakness in many commodity prices and
seems to be a significant sign that future cash allocation will favour returns
to shareholders. All this I see as encouraging for those brave enough to buy a
bit of a ‘knife catch’.
Aviva have been flushed out and
announced terms to acquire Friends Life (a.k.a Resolution) in an all paper
deal. As Aviva re-structures it will re-build its slashed dividend, but at the
moment it is a somewhat meagre 3%. Friends Life has been paying out a full
dividend, being a 5.75% yield. The main rationale for Aviva seems to be
accessing FL’s cashflow, so I would presume that Aviva’s lower yield will
prevail and FL holders will see an income drop. Aviva’s prospects still look a
bit cloudy in a challenging market, so FL holders facing that uncertainty and a
lower income stream may decide that cashing out after a smart share price rise
is attractive. (Neil Cumming, 24th November 2014)
These comments are not a personal
recommendation to deal. Any investments can fall as well as rise in value, so
you could get back less than you invest. I may have a financial interest in
some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk
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