I recall the justification for the new dividend policy announced at the 2020 AGM was that with an increasing portion of PTB’s future profit being earned in the United States, that PTB was unlikely to be able to attach full franking credits to future dividends if they continued at a higher level. The key here is that only tax paid in Australia counts for franking credit purposes.
In FY21 the Australian tax paid will be boosted by tax payable on the gain on sale of Warriewood and in FY22 to a lesser extent by the profit on sale of the Pinkenba property. However, aside from that, an increase in future United States profits won’t help the franking position.
The question will be whether directors are happy to pay future dividends which are cash covered by increasing future profits but which they can’t attach full franking credits. Part of the answer will lie in available cash and whether there a further investment opportunities available for that cash, either organic or inorganic.
I note the FY21 annual report (Note C3) that PTB had an effective balance in its Franking Account at 30 June 21 of $4.8m. My calculation is that the final dividend of 5 cps on 127.2m shares will use $2.73m of franking credits,. Therefore there should be sufficient franking credits to cover a 5 cps dividend next year (noting tax payable on the Pinkenba sale and FY22 Australian operations will add to the balance), but for FY23 onwards the ability to keep fully franking a 5 cps dividend may be doubtful.
PTB Price at posting:
84.0¢ Sentiment: Hold Disclosure: Held
