Gotta hand it to the WPL Board which has shown amazing versatility to take advantage of the current investment climate by morphing from a growth stock into a "Utility Stock" with an emphasis on dividend and yield. The good thing is that, if circumstances change and opportunities present, WPL can easily morph back to a growth stock.
The Funds are just going to love WPL ... So are income conscious investors wanting an eventual 7% yield ... Better than money in the bank.
Another good article follows:
"CYCLICALS INTO DEFENSE It has long been discussed that the disconnect between the shareholder and the boardroom is expanding.
Many have complained over the last five years that boardrooms do not listen to the demands of their shareholders, as they plough on with mindless expansion projects and capex splurges.
There is no doubt that the average Australian investor and the major super and hedge fund managers have been diving head first into defensives stocks - snapping up every bit of yield they can possibly grasp.
It took analysts over two years to understand this point, as fundamentals in the banks, consumer staples and telecommunications skyrocketed and looked ‘overvalued’ with ‘limited growth potential’. These terms were branded everywhere and led to ‘underweight’ and ‘sell’ calls across these spaces. The buys calls remained with the cyclicals.
Cyclical stocks have well and truly ignored this call for yield over and over again - until today.
Woodside Petroleum has broken ranks to become the first cyclical play to turn itself inside out, and is looking to yield as its main stock driver.
WOODSIDE BECOMES A UTILITY PLAY It is well known that Woodside has pulled out of its James Price Point onshore LNG project. The $45 to $53 billion dollar project was ‘financially not viable’.
There is no doubt about it - analysts believed the internal rate of return for the project was less than 10%. That figure, coupled with WPL’s acute awareness of the massive cost and time blow outs of its Pluto project, had déjà vu written all over it. The board had no option but to pull the pin on the Browse project.
This left WPL with a dilemma of what to do with the Browse project provisions; speculation was for either a share buyback or a special dividend. WPL’s answer is a special dividend, at US$0.63 on top of the already paid US$0.65 final FY12 dividend on April 5. The most surprising aspect of the announcement was the board’s decision to up its payout ratio from 50% to 80% of underlying net profit for ‘several years’.
This has effectively turned WPL from a ‘cyclical growth story’ to a ‘utility income play’ - prudence is the word of the day at WPL. Given the strong cash flows seen from its now fully operational Pluto plant, the fact that growth projects are now few and far between and gearing has hit a low of 11% (as of the end of 2012), cash will be in abundance. The 80% payout means the company has acknowledged that it is now basically a utility.
On current guidance, the total pre-special dividend payout ratio for 2013 was forecasted at 3.5% a share. Adding today’s special dividend to current guidance, the total yield moves to a 5.5% fully-franked dividend.
However, on an 80% payout ratio, 2013 estimates jumped to 5.2% and will hit a whopping 7% fully franked once the special dividend is added. This has seen the share price jump 8.15% today. If there ever was an indicator that Australian investors want yield, an 8% move in WPL’s share price is it.
BHP BILLITON AND RIO TINTO TO PLAY FOLLOW THE LEADER? There is certainly a strong argument that can be made regarding BHP and RIO following WPL’s lead. Both have several major long-dated capex heavy development projects in their wings. And both are looking to cut costs down to the bare bones as global growth slows (at least in the short term).
If BHP was to take a leaf out of WPL’s playbook to win back some much-needed PR, it could certainly clear the decks. Deutsche Bank believes BHP could shed up to $25 billion worth of non-core assets - RIO could clear out $12 billion.
The returning provisions could well and truly fund possible share buybacks or special dividends. The capex reductions would certainly streamline cash flows, allowing both BHP and RIO to up their payout ratios, something investors and traders alike have been calling for over the last five years."
(20min delay)