Dan­ger­ous div­i­dend debt

Finweek English Edition - - MARKETPLACE -

The mar­ket did not much like the Netcare re­sults as op­er­a­tional lever­age all went the wrong way. Rev­enue was up 15.4%, profit af­ter tax up 20.7% and earn­ings be­fore in­ter­est, tax­a­tion, de­pre­ci­a­tion and amor­ti­sa­tion (ebitda) up 13.6%, while head­line earn­ings per share (HEPS) only grew 10.9%. You want HEPS to be the faster­grow­ing num­ber, show­ing strong op­er­a­tional lever­age. Take it a step fur­ther and the in­terim div­i­dend was flat at 38c, but a line in the re­sults stated that debt was higher in part be­cause div­i­dend was be­ing paid from debt! I get what the di­rec­tors are do­ing – keep­ing con­ti­nu­ity with the div­i­dend, in part, to pro­tect the share price be­cause a re­duced div­i­dend would spook the mar­ket. But pay­ing div­i­dends from debt can be­come a dan­ger­ous spi­ral and I would rather a com­pany cut the div­i­dend than fund it with debt.

Pay­ing div­i­dends from debt can be­come a dan­ger­ous spi­ral and I would rather a com­pany cut the div­i­dend than fund it with debt.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.