As a rule of thumb if a company pays about 50% of its EPS as DPS, then the SP tends not to drop below a 4% yield. The 4% is a metric mooted by Rudi Filapek of FNArena. I added the DPS/EPS ratio as a crude way of saying that the dividend must be sustainable. Remember with franking credits, 4% translates to about 6%. If TGA does no better than meet the Thomson Consensus Estimates, then its SP should not fall below about 9.5¢ ÷ 4%, which is $2.375. If we use 5% to be conservative, we get $2.00 – at the current SP of about $2.160, TGA's SP is anything but “lofty”. The Thomson Consensus Estimates are:
If you are looking for lofty SPs to short, there are many better candidates than TGA. IVC at circa $11.900 has a PER of about 29 and a dividend yield of about 3%. That is in my opinion a lofty SP. IVC's Thomson Consensus Estimates are:
IVC has a higher dividend payout ratio. There is nothing magic about the 50% payout that I suggested in my opening sentence – it was just a crude way of saying there should be some leeway to fund growth and handle the odd EPS dip, and this tends to be about 50%, but can be higher for some businesses.
What I am hoping for is that TGA gets back to its recent EPS/DPS trajectory as TEF and other relatively recent initiatives gain traction. SIV for example, has a PER of about 19 and a dividend yield of about 3.5%. SIV's Thomson Consensus Estimates are:
I am a surprised that SIV pays a highish dividend relative to earnings, because it carries a lot of debt and if my memory serves me right, it recently stuck out a hand for an equity injection to fund growth.
In principle, TGA's TEF initiative is similar to SIV's business – financing items in the SME market. My main gripe about TGA's NCML acquisition is not that it paid too much for it, but that it was a distraction, and various organic innitiatives like Cashfirst and TEF should have enjoyed that funding and management attention instead of NCML.
This post has run away from me. All I wanted to say is that I do not think TGA's current SP is lofty – it is depressed if anything, which is why I hold, and hope that it might become lofty one day. In spite of that, I am ahead on my average buy price of $1.215, and the dividend I get suffices to meet my living costs.
TGA Price at posting:
$2.14 Sentiment: Hold Disclosure: Held
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