Argo Investments seems to be rolling in cash.
It lifted its final dividend for the year to June after revealing its fifth consecutive year of higher annual dividends with total payout for the year 31 cents, up from 30.5 cents a year earlier.
That was a nine year high, and while it will run its dividend reinvestment program this year, it will close off its share purchase plan for the time being – a sure sign of an investment company with more than enough cash for the time being.
That share purchase plan raised $60 million in 2016 and 2017, while the DRP brought in just under $40 million each year.
In fact it is cashed up and ready to buy – if it seems value, although holding too much cash on its balance sheet will eventually be a drag on performance.
The company’s 2016-17 accounts, released yesterday, show it had $209.4 million cash on had at June 30, more than double the $93.1 million the previous year. Much of that was due to the takeovers of Asciano and Duet Group during the year.
“Our cash balances are currently higher than in recent years, reflecting our cautious approach when we perceive market valuations to be relatively high,’’ CEO, Jason Beddow said in a statement to the ASX.
“We do not intend to offer a share purchase plan to shareholders in the immediate future as we have sufficient cash to take advantage of any volatility through the reporting season.’’
Adelaide-based Argo (the country’s second biggest listed investment company) said it would pay a fully franked final dividend of 16c per share, bringing the full year payout to a record of 31c.
That was despite a small, 2.2% dip in profit for the year to $211.5 million. Mr Beddow said Argo’s results were a good outcome, weakened slightly by the company’s underweight position in the materials sector (like its bigger rival, AFIC).
“The full year result and increased dividend was a good outcome, especially considering the reduced dividends we received from a number of the larger companies in the investment portfolio during the first half of the year.
“In the second half, we saw improved business and consumer confidence as concerns of fallout from further political upheaval did not eventuate.
“Global share markets have continued to march upwards, particularly in the US, driven by the rapidly growing technology sector which is pushing stock market indices to record highs.
“This optimism has spread to Europe and Japan where economic growth is at last recovering.
“The recent strength in our market was led by the return to favour of the larger cap companies. “However, some of the best individual share price performers were mid-size companies, especially in the resources sector.
“Healthy gains were recorded by most industry sectors and in our view this has led to some stretched market valuations.”
“We expect that global macroeconomic and geopolitical influences will continue to have a significant impact on the Australian stock market, as will the prospect of higher interest rates in the US and the potential unwinding of stimulus across a number of developed economies.
“While ongoing economic growth in China will be vital to the performance of the Australian resources industry, global growth has improved and this has contributed to robust demand for commodities and maintained commodity prices at levels above what may have been expected 12 months ago.
“Domestically, the banks face some well-publicised headwinds, and the recent A$ strength following commodity price increases and speculation that interest rates will start to rise again, may hamper companies with substantial offshore earnings.’’
During the financial year Argo bought $159 million of long-term investments. Proceeds of $218 million were received from long-term investment sales, which included $135 million from the takeovers of Asciano and DUET.
Its major buys for the year were Boral, CBL Corp, CSL, Estia Health and QANTM Intellectual Property, the five major sells were Asciano and Duet Group (via takeovers), ASX, Australian United Investment Co and Downer EDI (which bid for Spotless).
The shares rose 0.2% to $7.98.
