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JPGuru

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06/04/22

22:20

Post #: 60700858
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Originally posted by lampshade85: ↑

IMHO this is a good question, if you can call it a question. I saw stevey's response but (most respectfully) think that it might have missed the essence of what you were asking/criticising a little.
You're not asking "why do companies use debt" (obvious enough why you would use debt to fund growth - the rocks do not indeed mine themselves), or "did FMG do due diligence", but rather "why is FMG's dividend policy to pay out 50-80% of NPAT regardless of the company's debt profile?". Although this is a standard payout ratio for large cap mining, it is a pretty high payout ratio compared to some other sectors; Apple for example is a cash cow but only has a payout ratio of 15-20%, and Google pays no dividend at all, preferring to keep their debt super low and holding a huuuugggeee amount of cash on hand. FMG certainly could run a more conservative balance sheet at no cost to growth if they diverted more of NPAT into paying down debt rather than paying out dividends, all things equal. They simply choose not to.

The answer probably lies in AF's vision for the company. There's a great moment - I think it's in the "Never, Ever Give Up" doco (youtube.com/watch?v=t9A3ribtheA) - in which AF recounts the early days of the FMG story, and how some finance wonk told him he had to structure FMG as either a "growth" or an "income" company, so that the market would be able to price it correctly. AF's response was something along the lines of "screw you, we're going to do both", i.e. pay a big dividend every half but also chase ambitious growth projects. And that simply can't be achieved if you're using NPAT to pay down too much debt - blunts the "income" part of the equation.

Personally I love FMG's dividend policy - I'd much rather be free to invest my fully franked dividend payment every 6 months as I see fit than use it to pay down debt at FMG's borrowing costs.

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wow how on earth google or apple listed in US is comparable to FMG? US tax system support favourable to growth (capital gain) company compare to Australian tax system which is thanks to liberals giving double dipping on franking credit as well.. lol.

US tax law is more favourable to capital gain then income stocks in my opinion but surely google it and there is article on that as well.. lol

warren buffet himself love investing in dividend paying company but his own shares don't give any dividend... lol...

FMG Price at posting: $21.66 Sentiment: None Disclosure: Not Held
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