Dividend sustainability is more a function of cashflow than profit (albeit noting franking considerations).
GNC is busy pushing through $100m - $110m of depreciation and ammortisation each year which negatively impacts profit but has no impact on cashflow. That's about 45cps, so on a cashflow basis, the dividend payout ratio is only around 40%.
Seven consecutive half-year dividends of 24c or more and still enough cash to pursue (admittedly anemic) share buybacks is evidence of this.
GNC will also reach its crop protection payment cap this year and will then have 3-4 years of insurance benefit with no further crop protection payments to be made. This alone is worth a further 20cps per year.
Drought the only risk to at least sustaining current dividend level.
Characterising 10c of the dividend as "special" is just fat / lazy management's way of protecting their salaries in the case of financial downturn for the company. You know, make sure shareholders know that 10cps per half-year would come off dividend payments before anyone should pay attention to their excessive earnings.
An annual fully-franked dividend of 48cps is a 6.8% return on a $10 SP.
Sure, it's a fat, lazy company but there is minimal dividend risk for at least the next 3-4 years.
GNC Price at posting:
$7.87 Sentiment: Buy Disclosure: Held
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