Rail group Aurizon (AZJ) shares rose strongly yesterday despite a weak outlook for the coming year so far as its key coal and iron ore haulage businesses are concerned.
The rise of 4% to $5.24 had more to do with a big change in dividend policy than the weak outlook.
Aurizon has been under pressure from investors to lift payouts to shareholders. Yesterday it blinked, lifting second half payout to 100% and 85% for the year as a whole.
The company raised its dividend payout ratio to 70-100% of net profits after tax, and boosted the final dividend to 13.9 cents a share compared with 8.5 cents a year earlier.
This takes the full year dividend to 24 cents a share, up 45% on 2013-14 when a total of 16.5 cents was paid – it was a payout ratio for the full year of 85% and 100% in the six months to June.
The company forecast flat coal haulage volumes for 2016 and lower iron ore volumes (neither of which are really surprising) as it revealed a 14% rise in underlying net profits to $604 million and raised its dividend payout target.
Aurizon said its 2015 statutory net profits increased 139% to $604 million but that improvement reflected $386 million of asset impairments and voluntary redundancy costs taken in 2013-14.
But the company cautioned coal volumes would remain flat at between 210 and 220 million tonnes in 2015-16 after delivering volumes of 211.2 million tonnes in 2014-15.
Iron volumes, which fell 14 to 25.6 million tonnes in 2014-15, are forecast to drop to 24 million tonnes in 2016 while freight volumes are also expected to be slightly lower at 44 million tonnes.
Aurizon chief executive Lance Hockridge said the rail group would deliver on its financial targets "despite the subdued market and tonnage outlook”.
“Productivity improvements and cost reductions will underpin continuous improvement in our operations and for our customers, and also margin growth for the company,” Mr Hockridge said.
On top of the higher dividend, Aurizon said it continued its capital management initiatives, including buying back and cancelling 15.3 million shares, at a total cost of $69 million, since the announcement of an on-market buyback in November 2014.
"The Board has increased Aurizon’s dividend payout ratio range to 70-100% of NPAT. In determining the final dividend of 13.9cps, the Board considered the Company’s forecast reduction in capital expenditure, continued improvements in operating performance, and investment decisions regarding strategic growth projects not expected until late CY2016. The dividend will be paid on 28 September 2015 to shareholders on the register at the record date of 1 September 2015,” directors said.
“In recognition of Aurizon’s strong performance and the achievement of multiple corporate milestones in FY15, the Company will award $2,500 worth of Aurizon shares to each eligible permanent employee not eligible for the Long Term Incentive scheme."
