Dividend yield higher than earnings

Tysonboss1 · 13 June 2008

I have noticed that alot of infrastructure stocks that pay high dividends actually have a higher Dividend per share than earnings per share, for example BBI has a DPS of 16 but an EPS of 8, I have been trying to workout how this is possible.

the shares that do this normally say that the distribution is coming from operating cashflow, does this mean that the EPS is calculated on what is left after the dividend has been paid, rather than the dividend actually coming out of the EPS.

I am a bit confused with this one.

roland · 13 June 2008

Re: dividend yeild higher than earnings

Tysonboss1 said:
I have noticed that alot of infrastructure stocks that pay high dividends actually have a higher Dividend per share than earnings per share, for example BBI has a DPS of 16 but an EPS of 8, I have been trying to workout how this is possible.

the shares that do this normally say that the distribution is coming from operating cashflow, does this mean that the EPS is calculated on what is left after the dividend has been paid, rather than the dividend actually coming out of the EPS.

I am a bit confused with this one.

I think that you will find, such as any of the Babcocks, that since the SP has recently been smashed the expected dividend yield looks impressive against the share price.

I think you will find that the DPS earnings will all end up being downgraded - be cautious!

Julia · 13 June 2008

Re: dividend yeild higher than earnings

There was some discussion about this (with particular reference to Babcock and Brown) on "The World Today", lunchtime, today, ABC Radio.

The finance journalist said in such an instance the dividend payments are maintained by using capital!

wayneL · 13 June 2008

Re: dividend yeild higher than earnings

Julia said:
There was some discussion about this (with particular reference to Babcock and Brown) on "The World Today", lunchtime, today, ABC Radio.

The finance journalist said in such an instance the dividend payments are maintained by using capital!

If I remember correctly, Telstra was doing this for a number of years.

I haven't followed that old piece of crap for ages, so don't know how that panned out. However, it certainly suppressed the share price at the time.

MRC & Co · 13 June 2008

Of course, if DPS is higher than EPS, it has to come from the use of capital (decreasing assets) or a loan (increasing liabilities), either way, it will cause equity to fall and as such, the SP.

Basic accounting.

If you are going to "value invest" or invest based on fundamentals (same difference) then you should really know these things like the back of your hand.

kenny · 14 June 2008

Re: dividend yeild higher than earnings

Julia said:
There was some discussion about this (with particular reference to Babcock and Brown) on "The World Today", lunchtime, today, ABC Radio.

The finance journalist said in such an instance the dividend payments are maintained by using capital!

Hi Julia,

Any chance of a link to the report?

Wouldn't a payment drawn from capital be a Capital Return? Dangerous stuff either way. Just like TLS as previously mentioned.

regards,

Kenny

Tysonboss1 · 14 June 2008

MRC & Co said:
Basic accounting.

If you are going to "value invest" or invest based on fundamentals (same difference) then you should really know these things like the back of your hand.

I am not entirely daft,..

What I am asking is as far as accounting goes are stapled trusts treated differently in the way they report EPS and DPS.

Because it seems pretty much every stapled security I have looked at is paying more in dividends than they are reporting in earnings, Even the likes of westfield group and the Australian pipline Trust (APA), But then they also make mention that distrubutions are paid from the companies operating cashflow.

What I want to know are distrubutions from operating cashflow taken out before the earnings figure is calculated,

for example is it like a company earning $1M but then distributing $700,000 to shareholders and then reporting the remaining $300,000 as retained trust earnings.

so it would be similar to a company having $100,000 gross profit but the owner taking a wage of $80,000 which then leaves the company with $20,000 net profit.

for example

Julia · 14 June 2008

Re: dividend yeild higher than earnings

kenny said:
Hi Julia,

Any chance of a link to the report?

Hi Kenny,

Sorry I can't remember which day I heard it but it was during the past week.
I've had a look at the Wednesday and Thursday programme summary but it doesn't appear.

If you go to this link:
http://www.abc.net.au/worldtoday/
and work your way through the week's programmes, I guess it will come up.
It was amongst the finance journalist's report about the current state of BNB.
Failing that, the ABC are usually helpful if you email them and ask where you can access a transcript.

Sorry I can't be more specific.

MRC & Co · 14 June 2008

Tysonboss1 said:
I am not entirely daft,..

What I am asking is as far as accounting goes are stapled trusts treated differently in the way they report EPS and DPS.

Sorry, never saw anything about a trust in the original post.

Unfortunately, I am daft when it comes to accounting, so I cannot comment on whether or not trusts treat the reporting of EPS or DPS. Has to be some consistency (as it is a public company) for shareholders I would imagine.

I assume reporting standards are similar when I value a company (which is very rarely these days).

Has to be a few accountants here...........

Hyperion · 14 June 2008

Tysonboss1 said:
I am not entirely daft,..

What I am asking is as far as accounting goes are stapled trusts treated differently in the way they report EPS and DPS.

Because it seems pretty much every stapled security I have looked at is paying more in dividends than they are reporting in earnings, Even the likes of westfield group and the Australian pipline Trust (APA), But then they also make mention that distrubutions are paid from the companies operating cashflow.

What I want to know are distrubutions from operating cashflow taken out before the earnings figure is calculated,

for example is it like a company earning $1M but then distributing $700,000 to shareholders and then reporting the remaining $300,000 as retained trust earnings.

so it would be similar to a company having $100,000 gross profit but the owner taking a wage of $80,000 which then leaves the company with $20,000 net profit.

for example

Hi,

interesting question you ask. I don't make any representations as to being an accounting expert but this is what i suspect happens.

As you suggested, many of these infrastructure securities are structured as stapled securities (i.e. often a company and a trust, which are then "stapled" together such they can't be traded separately on the ASX)

I think they get the trust to hold most of the assets, hence it produces most of the income. All the active running of the business is done by the company so it incurs most of the expenses.

This is so the trust consists wholly of eligible investment business (i.e. passively holding investments/property) and thus isnt caught under Div 6C public trading trusts provisions. It then distributes ALL of its income so it doesn't get taxed.

The company, running the active side of the business incurs a loss.

The reported EPS and DPS numbers would be consolidated for the entire group. So the situation you describe would happen if the trust makes 100k, and then the company makes a loss of 70k.

EPS = 30k
DPS = 100k

Hyperion

p.s. my guess only, most happy to be corrected

MRC & Co · 14 June 2008

Good to have someone not so daft here!

But where is the company loss of 70k funded from? Off the books, either through decreasing assets or increasing liabilitie? So the same outcome...........?

Ultimately, is this sustainable?

Dividend yield higher than earnings

Tysonboss1

roland

Julia

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wayneL

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kenny

Tysonboss1

Julia

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Hyperion

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