Z to pump up dividend payout

Z Energy anticipates paying bigger dividends to shareholders under a new policy, which will see it slow down an accelerated pace of debt repayments at the end of the financial year and fund new capital purchases by selling other assets.

The Wellington-based company had been targeting 10 per cent annual growth in dividends per share as it repaid $705 million of bank debt taken on to fund the acquisition of the Chevron New Zealand assets, tweaking an earlier policy of paying dividends of 80 per cent of replacement cost net profit.

In a briefing to investors in Auckland, Z said it would pay between 80 per cent and 100 per cent of free cash flow in the 2019 to 2021 financial years. “The rationale for this policy is simply ‘better with you than us’,” said CEO Mike Bennetts.

“This policy rewards investors for their support and sees Z as one of the leading yield stocks across the NZX without t he complexity and unpredictability of share buy backs or special dividends.”

Z’s projected 32c per share dividend payment for the 2018 financial year represents a dividend yield of 4.2 per cent at a share price of $7.62, and would rise to as much as 8 per cent under the new dividend policy, it said.

The company signalled it was reviewing the dividend policy at the start of the year after debt repayments were tracking three or four quarters ahead of schedule.

Z affirmed guidance for annual replacement cost operating earnings before interest, tax, depreciation, amortisation, and f i nancial adjustments of between $445m and $475m, up from $419m in 2016.

Bennetts said the outage of the pipeline between Auckland and the Marsden Point refinery was still unclear but had not affected the company’s earnings forecast.

Z also outlined plans to eke out more efficiency in the business as it beds in the acquisition of the Caltex chain, and has identified an extra $30m to $35m of annual savings it can make by 2020 on top of the $40m to $45m already flagged. —