The Correlation Between Dividends and Cashflows- Cleanaway Waste Management, Carsales.com

Generally, dividends are paid from company’s remaining cash flows or known as free cash flows. Free cash flows tell the shareholders how much amount of cash a company is left with from its operations to pay for dividends, after paying all the other expenses like salaries, marketing, expenses for research and development etc and the simple formula to calculate free cash flow or also known as FCF is:

Cash Flow from Operations-Capital Expenditure= FCF

The major indicator of knowing how much dividend a company is paying from is cash balance, is cash dividend payout ratio. This ratio tells us about whether the company is going to sustain its current level of dividends and if the ratio is high, then the company is using large portion of its cash flow to pay dividends. Formula to calculate cash dividend payout ratio is:

Cash Dividend Payout Ratio=Total dividend payment/ (net income+ noncash expenses- noncash sales)

Now, let’s have a look at two ASX listed stocks with good dividend yield

Cleanaway Waste Management Limited (ASX: CWY)

Cleanaway Waste Management Limited is engaged in the business of:

• Commercial and industrial, municipal and residential collection services for all types of solid waste streams, including general waste, recyclables, construction and demolition waste and medical and washroom services;
• Ownership and management of waste transfer stations, resource recovery and recycling facilities, secure product destruction, quarantine treatment operations and landfills;
• Sale of recovered paper, cardboard, metals and plastics to the domestic and international marketplace;
• Collection, treatment, processing and recycling of liquid and hazardous waste, including industrial waste, grease trap waste, oily waters and used mineral and cooking oils in packaged and bulk forms;
• Industrial solutions including industrial cleaning, vacuum tanker loading, site remediation, sludge management, parts washing, concrete remediation, CCTV, corrosion protection and emergency response services;
• Refining and recycling of used mineral oils to produce fuel oils and base oils;
• Generation and sale of electricity produced utilising landfill gas.

Key Highlights of Annual General Meeting- Financials for the year ended on 30^th June 2019

• Net profit after tax attributable to ordinary shareholders was $123.1 million up 18.9% on the results achieved last year;
• In line with this increase in profits, company increased the total fully franked dividends paid to shareholders by 42.0% to 3.55 cents per share compared to 2.5 cents per share paid last year;
• The full year dividend payout ratio of 51% is in line with the Board’s target range of 50% to 75% of underlying earnings per share;
• Company’s balance sheet remains very strong with net debt at $658.5 million representing a net debt to EBITDA ratio of 1.4 times.

Appointment of Non-Executive Director

Ms Samantha Hogg has been appointed as an Independent Non-Executive Director by the company. The appointment shall be effective from 1^st November 2019. She holds international experience across the infrastructure, transport resources sectors and energy. She has held senior executive positions at Western Mining Company and Transurban across a broad range of portfolios including strategic projects, finance, corporate services and marketing.

Company is Process to Acquire SKM Recycling Assets

Cleanaway Waste Management Limited is the successful bidder for the acquisition of the assets of the SKM Recycling Group (SKM);

• Pursuant to the Acquisition, Cleanaway will acquire the properties, plant and equipment and certain other assets of SKM for approximately $66 million, subject to customary completion adjustments;
• Completion of the Acquisition is expected to occur by the end of October 2019;
• Sale proceeds will be applied to repay Cleanaway’s senior secured debt, accrued interest and costs associated with the receivership.

Stock Performance

The stock of CWY is trading at $1.785 per share on 28^th October 2019, down by 3.514%from its previous closing price (AEST 03:04 pm), with a market capitalisation of $3.8 billion. The total outstanding shares of the company stood at 2.05 billion, and its 52-week low and high is $1.535 and $2.525, respectively. The company has given a total return of -14.46% and -6.58% in the time period of 3 months and 6 months, respectively. Currently, the stock is trading at a price to earnings multiple of 30.830x as per ASX, and the company has an EPS of $0.060 per share. The company has an annual dividend yield of 1.92%.

carsales.com Limited (ASX: CAR)

carsales.com Ltd is the largest online motorcycle, automotive and marine classifieds business in Australia, attracting more Australians interested in buying or selling cars, trucks, motorcycles, boats and caravans than any other classified group of websites.

• Employing more than 600 people in Australia, carsales develops world leading technology and advertising solutions that drive its business around the world;
• The carsales network has operations across the Asia Pacific region and has interests in leading automotive classified businesses in Brazil, South Korea, Malaysia, Indonesia, Mexico, and Thailand
• carsales brings together consumers, dealers, manufacturers and advertisers to deliver arguably the best solutions and experience in the global automotive classified business.

FY19 Highlights for the year ended on 30^th June 2019

Domestic Highlights

• Robust revenue performance in core Dealer (+7% on pcp) and Private (+4%) advertising segments;
• Pleasing growth in audience and vehicle enquiry metrics in company’s Dealer business;
• Good growth in depth penetration and usage;
• Impressive performance for private customers reflected in the considerable reduction in time to sell;
• Private yield expansion continued through price optimisation and increased premium ad penetration;
• Good response from OEMs and dealers to reinvigorated new car offering and enhanced Display proposition.

International Highlights

• Strong international growth with look through revenue up 39% and EBITDA up 29% on pcp;
• Double digit underlying local currency revenue growth in all international classified businesses;
• Korea performed well in first year of 100% ownership with underlying local currency revenue and EBITDA both up 13%;
• Brazil delivered a standout performance with rapid expansion of its dealer customer base driving revenue and EBITDA growth of 35% and 54% in local currency respectively;
• Combined revenue in Chile, Mexico and Argentina up 22% on a constant currency basis;
• Final dividend of 25.0 cents per share declared up 5% on pcp.

Key Operational Highlights Source: Company’s Presentation

Outlook for FY20

The company assumes a gradual recovery in Australian automotive market conditions across the year, supported by lower interest rates, an improved lending environment, a recovering property sector and recent tax changes.

• The company saw a solid start to the year in Q1 in Core Australian Dealer and Private businesses;
• In Display, company is anticipating an improving trajectory across FY20, however albeit market conditions remain challenging in this segment;
• The underlying performance of Data business has been solid excluding the continued exit of non-core low margin product and contracts;
• The company also expects domestic adjacent businesses of tyre sales and Redbook Inspect to show good growth in FY20.

Stock Performance

The stock of CAR is trading at $15.700 per share on 28^th October 2019 (AEST 03:18 pm), down by 0.317% from its previous closing price, with a market capitalisation of $3.86 billion. The total outstanding shares of the company stood at 245.15 million, and its 52-week low and high is $10.560 and $16.370, respectively. The company has given a total return of 3.74% and 11.62% in the time period of 3 months and 6 months, respectively. Currently, the stock is trading at a price to earnings multiple of 45x as per ASX, and the company has an EPS of $0.350 per share. The company has an annual dividend yield of 2.89%.

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