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Most Australian companies‘ fiscal years run from Jul. 1 to Jun. 30. They typically report earnings twice a year, in February and August. Most also declare dividends when they announce earnings–interim dividends when they report fiscal first-half results in February, final dividends when they report full-year results in August.
Dividend growth is not an infallible measure of company health, but it’s pretty good. Boosting a payout is management’s best commentary on the ability of its underlying business to continue to grow.
Dividend growth does not necessarily translate into immediate share-price appreciation, but over the long term, a rising dividend is the best indication of a company’s ability to grow revenue and earnings. And it’s a pretty good way to build wealth for investors as well.
Here’s a look at three companies in my coverage that recently announced higher dividends.
Ausdrill Ltd (ASX: ASL), a company I recommended in the past as one of my favorite Australian dividend stocks, paid a fiscal 2012 dividend that was 13 percent higher than what it paid in fiscal 2011.
Ausdrill offers an integrated mining solution, with its core business being hard rock surface mining services under three- to five-year contracts with long-standing customers.
Along with full-year results Ausdrill announced a 23.1 percent increase to its final dividend to AUD0.08 from AUD0.065 a year ago; its fiscal 2012 interim dividend, announced in late February, was AUD0.065, up from AUD0.055 a year ago. Management has never cut the payout, even during the Great Financial Crisis.
Ausdrill’s fiscal 2012 revenue surged 27 percent to AUD1.059 billion, while statutory net profit after tax (NPAT) was up 53 percent to AUD112.2 million. Cash from operations of AUD156.8 million was ahead of analysts’ expectations, despite an extra AUD71 million investment in working capital for growth. The company also spent AUD270 million on acquisitions during the year.
Reported earnings before interest, taxation, depreciation and amortization (EBITDA) and EBIT margins improved to 27.2 percent from 23.4 percent and 16.3 percent from 13.5 percent, respectively.
As of Jun. 30, 2012, Ausdrill had net debt of AUD240 million, with AUD124 cash on hand. Net debt-to-equity at the end of the fiscal year was 32 percent.
In late August Ausdrill announced it had reached an agreement to buy Best Tractor Parts Group for AUD165 million through its subsidiary Ausdrill Mining Services. The deal is expected to close by Oct. 31, 2012.
Managing Director Ron Sayers described the acquisition as “strategic move” that would create new revenue streams. “It will enable us to grow our hire fleet from 117 to 194 vehicles, enhance our maintenance capabilities and captures additional opportunities to build relationships with blue-chip customers,” said Mr. Sayers during a conference call to discuss the transaction.
For the financial year ended Jun. 30, 2012, Best Tractor generated revenue of about AUD176 million and earnings before interest, tax, depreciation and amortization of about AUD50 million.
The acquisition will be funded with debt, which will drive Ausdrill’s net debt-to-equity ratio close to 50 percent high by historical standards but manageable in light of the company’s solid cash flow generation. Ausdrill will likely look to add more assets during this time of distress for mining services companies that aren’t as well-placed.
Ausdrill has work in hand based on signed contracts and letters of intent worth approximately AUD2.5 billion, and management noted again during its discussion of fiscal 2012 results that “tendering activity remains high,” particularly in West Africa.
Without considering the impact of the Best Tractor acquisition Ausdrill forecast fiscal 2013 revenue growth of approximately 15 percent and that it would maintain similar EBITDA and EBIT margins.
Ausdrill’s roster of customers includes resources giants such as BHP, Rio Tinto, Barrick Gold Corp (NYSE: ABX) and Newmont Mining Corp (NYSE: NEM). Large and long-standing clients account for more than two-thirds of Ausdrill’s revenue. It has a growing fleet of more than 700 drill rigs, trucks, loaders and excavators and a significant amount of ancillary equipment.
The company recently received a letter of intent for a five-year, USD540 million contract award for work at Mali’s Syama gold mine, its largest single deal ever.
It’s a perilous time to pick winners in the resources space. But companies with high exposure to production as opposed to the capital-investment cycle; with blue-chip clients under long-term; and with records of performance over time are solid bets. Ausdrill, based on its operating results, meets all these criteria.
Like Ausdrill, MACA Ltd (ASX: MLD) is a solid mining services company with long-term relationships with big-name resource producers around the world. MACA offers contract mining, civil earthworks, crushing and screening and material haulage primarily for iron ore and gold mining companies.
MACA boosted its full-year dividend 33.3 percent to AUD0.08 per share for fiscal 2012 from the AUD0.06 per share it paid in fiscal 2011. It raised both its interim and its final dividend year over year, announcing the latter increase along with full fiscal 2012 results on Aug. 27.
MACA reported fiscal 2012 net profit after tax of AUD37.7 million, beating analysts’ expectations. Earnings before interest, taxation, depreciation and amortization (EBITDA) was strong in the second half, AUD49.5 million versus AUD35.2 million in the first half, and margins were slightly better, 25.7 percent versus a fiscal 2011 second-half figure of 24.9 percent.
Operating cash flow in the second half was AUD35.2 million, up from AUD17.7 million in the first; for the year MACA generated AUD52.8 million. Revenue for fiscal 201 was up 34.4 percent to AUD334.9 million, while EBITDA for the year was up 31.6 percent to AUD86.3 million. EBITDA margin for the year was 25.8 percent.
MACA boasts an order book of AUD1.3 billion, with an average contract length of three years but with many much longer than that. That’s down from AUD1.4 billion as of Jun. 30, 2011.
The balance sheet is healthy, with net debt of AUD15 million, includingAUD39.9 million in cash and AUD54.8 million in debt. Net debt-to-equity is just 13 percent as of Jun. 30, 2012.
Management is targeting more than AUD400 million of revenue for fiscal 2013.
Like Ausdrill, MACA offers a high degree of earnings visibility, with a strong order book and longstanding relationships with key clients. This opens doors to more long-term mining opportunities. It also has a high degree of production exposure versus capital-cycle exposure.
Bradken Ltd (ASX: BKN, OTC: BRKNF), which manufactures and supplies equipment and materials to the mining, rail and industrial sectors, posted solid fiscal 2012 results, with earnings before interest, taxation, depreciation and amortization (EBITDA) up 12 percent to AUD220.4 million and net profit after tax up 15 percent to AUD100.5 million, both figures beating management guidance.
It also boosted its interim distribution in February 2012, from AUD0.0185 for fiscal 2011 to AUD0.195, and its final distribution in August, from AUD0.21 a year ago to AUD0.215. All told Bradken boosted its payout 3.8 percent from fiscal 2011 to fiscal 2012.
Management says the company’s order book is at a record but also stressed that earnings visibility beyond the first half of fiscal 2013, which commenced Jul. 1, is “limited due to global economic uncertainty.”
It has no direct exposure to commodities prices, though it clearly is sensitive to activity in the mining sector. It has no debt maturities through 2013, and its overall debt burden is low relative to total assets and coming down.
Management noted during its fiscal 2012 conference call that the company had gotten past a couple troubled contracts for the provision of rail wagons and that it had made significant progress with a new ground engaging tool for the mining industry that it developed in-house and so promises higher margins once it’s rolled out on a wider geographic basis.
The stock has come well off its 2012 high near AUD8.60 on fear about global economic growth and the fate of Australia’s mining/resource boom, but recent dividend increases are pretty solid indications of management’s confidence.
Bradken did cut the dividend in 2009 and 2010, and the share price has suffered significant declines during those periods when fear has been highest. But the track record of execution is solid, and management does a nice job with the finances.
Though concerns about the condition of the global economy abound, commodity demand remains strong. This demand is underpinned by the development and industrialization of the developing world and is driving prices and production higher. Bradken’s position on the production side of mining operations–as well as its global manufacturing platform, its product lines, its ability to research and develop its own products and solutions and its solid balance sheet position it to grow revenue, earnings and dividends. Uncover 5 more high-dividend picks with unrivaled safety by checking out my free report.
