Melbourne-based Djerriwarrh Investments is paying a steady interim dividend of 10c a share despite a 16.2% lift in first half returns which followed higher dividends paid by the major banks in particular.
The company yesterday told the ASX that net operating profit (which measures the underlying income generated from the investment and trading portfolios) was $23.4 million for the December 31 half year, up 16.2% on the $20.1 million earned in the same period of 2009-10.
The company said the increase was "driven primarily by the recovery in dividends paid by companies in which Djerriwarrh invests, in particular the major banks, and by participation in the recent Woolworth’s buy back of its shares".
Reported Profit for the half year was $25.6 million versus $15.1 million last year.
The company pointed out that two figures are not directly comparable because of a change in accounting standards which impacted the 2009 figure.
Besides the steady interim, Djerrwarrh has cut the discount on the Dividend Reinvestment Plan to 2.5% from 5%.
"The current dividend yield on the share price is 6.2 percent fully franked," directors said.
The company said the, "Australian market showed renewed confidence over the first half of this financial year as growth in China remained strong and evidence emerged of an improving economic environment in the United States.
"The Australian market benefited from these conditions with the resource and related sectors experiencing very strong returns with the S&P/ASX 200 Resources Accumulation Index up 23.5 percent over this six month period.
"Djerriwarrh’s portfolio return of 11.1 percent for the six months to 31 December 2010 was slightly behind the return of 12.8 percent for the S&P/ASX 200 Accumulation Index given the company typically does not invest in the speculative end of the resources sector.
" However, these figures do not reflect the benefit of the fully-franked nature of the Company’s high dividend yield, compared with the market.
"Option writing activity which Djerriwarrh uses to enhance income was affected by the lower levels of option volatility given the more stable conditions that were experienced during the half.
"As a result the Company looked to increase its option coverage over the period particularly through buy-write activity in high yielding shares such as the ANZ and Commonwealth Bank.
"Djerriwarrh’s other major purchases were in Orica, Coca Cola Amatil, Trust Company (which is a new stock in the portfolio with a high dividend yield) and Woolworths.
"Major sales over the period occurred as a result of the strong rise in the share prices of Rio Tinto and Transurban which meant some call options on these stocks were exercised.
"However in most other instances a number of options in industrial and banking stocks expired out of the money as these sectors underperformed the market.
"In addition, where there was a prospect of being exercised on companies in rising sectors such as resources and energy, Djerriwarrh was also able to buy back option positions and move them to ones with higher exercise prices."
Revenue from operating activities (excluding capital gains) was $22.3 million, 37% up from $16.3 million in the previous corresponding period.
Net tangible assets per share before any provision for deferred tax on the unrealised gains on the long-term investment portfolio as at 31 December 2010 were $3.70 (before allowing for the interim dividend), down from $4.06 (also before allowing for the interim dividend) at the end of the previous corresponding period.
The company’s shares rose 3c to $4.29. They were at $4.76 when the group revealed its full 2010 figures last August.
