Dividend Leaders from IT, Banking and Resources Space

  • May 15, 2020 AEST
  • Team Kalkine
Dividend Leaders from IT, Banking and Resources Space

Due to the uncertainty surrounding the impacts of Coronavirus and associated risks, many companies all around the globe have decided to freeze their dividend payments till things get normal. In a country like Australia, where dividend stocks have always been looked as an attractive investment, it has become increasingly difficult for investors to choose the right stocks for their portfolio.

Earlier banking stocks were considered as secure and reliable dividend stocks. However, due to the impacts of Coronavirus, many Central Banks and regulatory authorities around the world have advised their regulated banks and entities to freeze or reduce their dividends for the time being, in order to preserve more cash and increase their lending to keep the economy running. Australian Central Bank- RBA, at present, has not declared any plans to halt the dividends of Banks. However, it has advised the banks to pay some level of dividends to their stakeholders.

Banking Space - National Australia Bank Limited (ASX:NAB)

One of Australia’s leading banks, National Australia Bank Limited, is one such Bank which still plans to pay decent dividends to its shareholders. Due to the guidance put by the RBA, NAB reduced the H1FY20  interim dividend to 30 cents per share(cps) in order to have enough capacity to continue supporting its customers and to assist to manage through a range of possible scenarios, including a prolonged and severe economic downturn.

NAB has recently completed an underwritten institutional placement of $3 billion, wherein it issued 212 million new fully paid ordinary shares. For three months ending 31 March 2020, NAB reported total risk weighted assets (RWA) of $432,666 million and a leverage ratio of 5.24%. In the same time span, Level 1 Common Equity Tier 1 capital ratio of the bank stood at 10.41% on the total capital of $63,203 million.

NAB has a continued focus on cost and is positioning itself for return to growth post COVID-19. Currently, the bank is maximizing organic capital generation and is improving outcomes for customers, colleagues, and shareholders, with strong capital and liquidity.

Currently, NAB has a market cap of around $48.71 billion and an annual dividend yield of 7.41%.

To know more - COVID-19 Pandemic Impacts Big Four Australian Banks

IT Space - Service Stream Limited (ASX:SSM)

Service Stream Limited is indirectly related to the space of information technology as it provides integrated end-to-end asset life-cycle services across essential infrastructure networks within the Telecommunications sector. In addition, the company also provide similar services for utilities sector. In the last five years, the company has witnessed continuous improvement in its top line and bottom line. During the same time span, the company has also paid regular dividends to its shareholders. During 2015-2019, the company’s declared dividends increased at a CAGR of 56.51%.

                                         

                                                                    Dividend Trend (Source: Company Reports)

For the last financial year – FY19, the company paid total dividends of 9 cents per share, up 20% on the previous corresponding period.

In the first half of FY20 or H1FY20, the company’s all profitability measures were up, relative to 1HFY19. For the period, the company reported EBITDA from operations of $58.1 million, up 50% on pcp and revenue of $348 million up 43% on pcp, driven by the $147.3 million contribution from Comdain Infrastructure and strong growth from Fixed Communications. For H1FY20, the company reported adjusted NPAT of $25.1 million, up 28% on pcp. Driven by the improved financial results, the company paid an interim dividend of 4 cents per share, 14% higher than pcp.

Moving forward, the company is focused on operating across growing markets and remains in an excellent position to deliver further earnings growth in FY20. In the second half of FY20, the company is focused on finalising Comdain Infrastructure integration activities, mobilisation of Sydney Water and QUU SCADA contracts, assessment of external growth opportunities and progress OMMA & NMRA renewals.

Resource Space - Origin Energy Limited (ASX:ORG)

Origin Energy Limited is an integrated energy company in Australia with a rich heritage in energy exploration, production, power generation and retailing. Further, the company owns 37.5% interest in APLNG, a significant supplier to both domestic and international LNG markets, which provides diversification of cash and earnings to ORG.

For the financial year 2019 or FY19, the company reported Underlying Profit of $1,028 million, an increase from $726 million in FY18. For the full year FY19, the company paid a total dividend of 25 cents per share.

The company’s robust operational performance was continued in H1FY20 as it witnessed strong performance from Australia Pacific LNG, delivering record production and higher revenue, however, this was offset by the impact of price re-regulation, one-off generation outages and lower electricity volumes in Energy Markets. For H1FY20, the company reported Underlying EBITDA of $1,590 million and underlying profit of $528 million in H1FY20.

The strong free cash flow growth over the period, allowed the company to increase interim dividend for H1FY20 to 15 cents per share (fully franked), up 5cps from pcp.

Amid the current challenging situation, the company is considering a range of options which can help in reducing the expenditure and offsetting the impacts of COVID-19 and lower oil prices and it is pursuing other opportunities to deliver on its strategy of improving customer experience, reducing cost to serve and growing new revenue streams. As per the update provided on 6 April 2020, the company has not witnessed any material impact on Origin’s energy supply operations and its customers are receiving interrupted and reliable electricity, natural gas, and LPG supply. Till now the impacts of Covid-19 have not been substantial and can be absorbed within the company’s existing FY2020 guidance range. In Energy Markets business, the company expects its FY20 Underlying EBITDA to be in the range of $1.4 - $1.5 billion, subject to any significant increase in bad and doubtful debt provisioning.

As at 15 May 2020, ORG has a market cap of around $9.21 billion and an annual dividend yield of 5.74%.

 NOTE: All figures are reported in Australian Dollars unless stated otherwise

 


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