Like many of its peers, Adelaide based Argo Investments has trimmed interim dividend after reporting a slide in earnings for the six months to December 31.
The Listed Investment Co follows similar news from groups like Australian Foundation, Mirrabooka and Djerrwarrah as the sector was hit by the impact of the pandemic forcing companies to cut or suspend dividends for the June 30 half or the half to September 30 (such as the big banks) or abandon share buybacks.
That is expected to reverse in the current December 31 period for some companies, such as the Commonwealth Bank tomorrow and a host of retailers like JB Hi Fi, Super Retail, Premier investments and Bapcor.
Argo told the ASX in its interim results statement on Monday that numerous companies in its investment portfolio substantially cut or cancelled their dividend payouts, which significantly impacted Argo’s half year profit.
That saw Argo report a profit of $67.4 million down 43.3% from $118.8 million a year earlier.
The Argo board did not be cut its interim dividend by the same margin. It has declared a fully franked 14 cents per share dividend, down just 12.5% on the same period last year.
The company justified that decision, saying: “Although dividend income was down sharply, Argo’s Board declared a modestly lower interim dividend of 14.0 cents per share fully franked.”
“A key benefit of Argo’s listed investment company (LIC) structure is our ability to draw on reserves of retained earnings and franking credits.
“This enables Argo to cushion the impact of fluctuations in dividend income through the economic cycle, allowing a more sustainable dividend flow to shareholders, as distinct from index funds,” it explained.
Investors liked that assurance and the shares rose 2.5% to close at $8.94.
Judging from comments in the release, Argo seems cautiously optimistic on the remainder of the year.
It commented: “We are generally optimistic in our outlook for the year ahead. Despite numerous and ongoing state border closures, Australia has continued to fare well both economically and in the fight against COVID19.”
“Economic growth has rebounded, and the outlook has improved with the economy likely to continue to benefit from ultra-low interest rates and strong commodity prices. However, we are also cognisant of potential challenges arising as unprecedented stimulus measures are unwound and the Australian and global economies transition to a new normal.”
“With a well-diversified portfolio of quality stocks, no debt and a strong balance sheet, Argo’s business model remains resilient. Argo maintains profit reserves and franking credits so we can prioritise providing sustainable and tax-effective dividend income for our shareholders,” it concluded.
Looking at its portfolio, Argo said that during the half-year, it purchased $114 million of long-term investments which included adding to existing positions. Over the same period, Argo received $122 million from sales and takeovers of long- term investments.
The total number of stocks in Argo’s diversified investment portfolio increased from 89 to 92 with some smaller companies in the digital payments, technology and battery commodities sectors added to the portfolio.
Purchases in the half were Bega Cheese (in the capital raising), Newcrest Mining (a new position), Sydney Airport (bottom fishing?), Downer EDI, Healius and Aurizon Holdings (rail group and a new position).
Argo said it sold AMP and Ansell (existing the holding completely, ANZ, Westpac and Sydney Airport and Australian United Investment.
Selling some of its Westpac and ANZ means Argo has missed the solid rise in the share price of the two banks in early 2021.
