Mainstream retailers, most notably Lewis, Foschini, Woolworths, Spar and Mr Price, are already generously crossing the palms of shareholders with silver. But there may be less obvious winners too.
Three of the alternatives are Rex Trueform, Verimark and recently listed Holdsport. They lag behind the mainstream JSE retailers in size, reputation, brand strength and market liquidity. Their market ratings are not in the heady numbers of their better-known counterparts. Separate issues bedevil each of the three.
But the trio may well offer an opportunity for a more than useful long-term dividend yield.
Rex Trueform, which retails through the Queenspark fashion chain, is hobbled not so much by operational inconsistencies or the lack of a performance record as by illiquidity.
Scraping together a parcel of Rex Trueform stock (in the form of the ordinary or N shares, or shares in parent company African & Overseas) will test the most patient investor.
For those who do manage to accumulate shares in the company at the last traded price of R16,50, the historical dividend yield is a solid 3,1%.
That's lower than Foschini, Mr Price and Truworths, but investors in Rex Trueform would hope that the Shub family, which has controlled the company through three generations, would ease the conservative dividend cover (see graph).
In the past financial year the dividend payout was covered nearly four times by earnings. CEO Catherine Radowsky was not available to take queries about the possibility of cutting the dividend cover in future. Company secretary Alan Hodgkinson was not willing to comment on the matter, but noted that the dividend cover had gradually come down over the years.
Still, there are a few factors concerning the dividend policy that must surely strain the minds of Rex Trueform executives. The company, now shorn of its clothing manufacturing operations, generates strong operational cash flows (equivalent to over 300c/share in the past financial year).
The cash flows probably provide sufficient capital for the growth of the Queenspark footprint, but the company also sits on a cash pile of almost R150m (or 750c/share) - equivalent to more than half its annual gross profit figure.
With acquisitions unlikely, a share buyback a preposterous proposition and the expansion of the Queenspark chain unfolding cautiously, there is a clear argument for the company to return capital to shareholders in the form of far more generous dividends.
Bigger payouts would probably also go some way towards placating large empowerment shareholder Brimstone, which as yet has no board representation but must surely want better returns from the large parcel of shares acquired from Old Mutual in September 2007.
For those believing in the magic of Christmas trading, direct retailer Verimark might also offer an attractive forward dividend yield. Its share price has been knocked down under 130c from a midyear high of 204c after some modest interim numbers.
On listing in 2005 Verimark held a policy of paying out 80% of its earnings in dividends. Operational hitches, however, induced a sense of caution, and this ratio was reduced to 50%.
The latest interim earnings came in at around 7c/share, a figure that should increase markedly in traditionally stronger second-half trading. CEO Mike van Straaten says Verimark can earn 60%-67% of its profits in the second half, a development that swings around the numbers in the cash flow statement in a rather dramatic fashion.
Reading between the lines - and knowing that Van Straaten will be wary of overpromising on second-half prospects - it seems conservative to assume Verimark could push full-year earnings to somewhere between 18c/share and 20c/share.
Assuming no unexpected capex or acquisition, this works out at a dividend of 9c-10c/share and an attractive forward dividend yield of close to 8%. The risk, of course, is inconsistency that can come with the launch of new product lines and changes to the retailing format.
Shareholders will be hoping Verimark does not suddenly drop the ball again, as it did between 2007 and 2009.
Holdsport, which listed earlier this year, also has a fixed dividend policy set at 1,8 times to twice core earnings. A maiden interim dividend of 47c (covered 3,4 times by earnings) was declared last month, so a full-year payout of about 160c/share may be inferred should core earnings top last year's 316c/share.
The forward dividend yield of 4,5% is reasonably attractive, but Holdsport's recent store openings in its Sportsmans Warehouse and Outdoor Warehouse divisions might spur growth at the bottom line in the second half (which includes the peak Christmas trading period).
In this case bigger earnings equate to bigger dividends, if one notes that Holdsport's recent track record shows the ability to more than match operating profits with cash flows.
Source: Financial Mail
For more than two decades, I-Net Bridge has been one of South Africa’s preferred electronic providers of innovative solutions, data of the highest calibre, reliable platforms and excellent supporting systems. Our products include workstations, web applications and data feeds packaged with in-depth news and powerful analytical tools empowering clients to make meaningful decisions.
We pride ourselves on our wide variety of in-house skills, encompassing multiple platforms and applications. These skills enable us to not only function as a first class facility, but also design, implement and support all our client needs at a level that confirms I-Net Bridge a leader in its field.
Go to: http://www.inet.co.za
