Will the YAL final dividend hit $1.50?, page-6

I think it is almost certainly going to be higher.

The constitution requires a minimum of 50% of NPAT or 50% of FCF (whichever is higher) to be paid as interim and final dividends.

Based on the company presentation released to the ASX on 10 November 2022, operating cash flow for the half year was $2.75 billion.

Even if we assume that the operating cash flow for the second half was slightly lower (say $2.5 billion), that is still operating cash flow of $5.25 billion for the full year.

50% of that is $2.625 billion. Take off $700 million in dividends already paid and you get $1.925 billion. Divide that by 1.32 billion shares on issue and you get $1.45 per share.

However, that dividend only reflects the constitutional minimum. It does not have regard to the actual cash position of YAL at the full year. Also disclosed in the company presentation (page 17) is that:

1. the company had AU $3.4 billion of cash on hand as at 30 September 2022
2. an early debt repayment of US $1 billion was made in October. Converting that to AUD, that's AU $1.45 billion;
3. another early debt repayment of US $459 million was made recently and announced to the market. Converting that to AUD, that's $675 million.
4. Therefore, taking accumulated cash from 30 September and deducting $1.45 billion and $675 million leaves $1.275 billion in cash, before taking into account cash generation for the final quarter.
5. If we assume a similar rate of cash generation to the first half, YAL is generating approximately $450 million in cash per month. Therefore, by the end of December YAL should have accumulated a further $1.35 billion in cash.
6. Therefore, total accumulated cash by 30 December 2022 should be slightly over $2.6 billion.
7. The company could easily decide to pay all of that cash out as the final dividend, in circumstances where cash generation continues to be so high, and it has no more debt repayments due for a number of years.

Based on YAL's inclination to pay dividends above the minimum 50% ratio in prior years, and having regard to the enormous cash balance as at 30 December, my expectation is that YAL will pay out all of the accumulated 30 December 2022 cash (remember that it won't be paid until March next year, by which time YAL will have accumulated another $1.5 billion in cash if coal prices remain at similar levels to current).

If YAL does that, then we would be looking at a dividend of $2.6 billion / 1.32 billion shares = $1.95 per share. I know that sounds a bit crazy at first blush, but I think it is highly likely.

Those calculations also assume an unfranked dividend. I am not entirely clear on the tax losses situation. Based upon the company presentation YAL will be paying tax in 2023. I am not sure if that means that 2023 calendar year, or FY23.