Djerriwarrh Investments (DJW), the second of the listed investment companies based in Melbourne and linked to the old JBWere stable of companies, yesterday produced a solid 2013-14 result, with a profit rise of nearly 21% after tax and a final dividend of a steady 16c a share. That takes dividend for the full year to an unchanged 26c a share.
Despite the encouraging news, Djerriwarrh shares were marked down slightly in yesterday’s positive market.
The shares closed down 1.6% at $4.85.
Directors said profit for the year was $42.9 million, up 13.9% from $37.7 million in the corresponding period last year.
DJW 1Y – Djerriwarrh Investments keeps dividend steady
Djerriwarrh directors said they prefer to use the net operating result "which is our preferred measure of the on-going investment, trading and option income from the Company’s portfolios".That was up 20.8% to $42.4 million compared with $35.1 million for the last year.
"Income from option activity and the trading portfolio was $14.7 million, well ahead of the corresponding figure of $9.7 million last year.
"The increase was a result of the rise in the market combined with maintenance of option coverage over the portfolio at the upper end of the target range.
"Income from investments was also up as a result of the general move to higher dividend payments from companies Djerriwarrh invests in and demerger dividends from Amcor and Brambles.
"Taxable realised gains, from the sale of holdings primarily associated with the Company’s option activity, are also an important part of generating income and franking for distribution as franked dividends. This financial year $9.3 million of after tax realised gains were generated,” the company said.
Djerriwarrh said its portfolio return for the twelve months to June 30 was 15.6% whereas the S&P/ASX 200 Accumulation Index rose 17.4%. Djerriwarrh’s performance numbers are after expenses and tax paid.
Directors said that, "In a strong market environment, such an outcome reflects the investment approach of writing call options over thirty to forty percent of the portfolio and also the tax paid on realised gains when some of those options were exercised.
"However, the generation of franking credits from this activity are an important element of Djerriwarrh’s strategy. This can add significantly to investor returns for those who can take advantage of these franking credits.
"Djerriwarrh’s portfolio performance incorporating the benefits of franking credits paid delivered a return of 19.1% over the year, whereas the S&P/ASX 200 Accumulation Index return was 19.2% when franking credits are also included.
"Call options exercised during the period covered a range of holdings, particularly higher yielding stocks including the major banks.
"A number of purchases were made over the year to replenish these bank holdings. Other major additions included Wesfarmers and Woolworths, as well as a number of new stocks to the portfolio including CSL, Twenty-First Century Fox, Qube Holdings, Aurizon Holdings, James Hardie and Japara Healthcare (through the IPO)."
Looking to the immediate future, directors said that notwithstanding the patchy economic environment in Australia, "company earnings have been generally reasonable, delivering improved dividends".
"This trend along with the low interest rate environment contributed to the market moving strongly higher over the year.
"However, volatility has also declined to very low levels. These factors are important in the pricing Djerriwarrh receives for writing call options.
"Our assessment is that economic conditions will continue to be patchy with interest rate settings unlikely to change materially in the near term.
"Whilst this will not be the only factor influencing equity market sentiment it is expected the Company will continue to keep option coverage at the upper end of its desired range until there is some downward correction in the market or greater value is on offer," directors said.
