DJW - Djerriwarrh Investments

[System]

Djerriwarrh Investments Limited (DJW) is a listed investment company investing in Australian equities with a focus on the top 50 ASX shares by market capitalisation. The company also uses Exchange Traded Options to enhance income return to investors.

http://www.djerri.com.au

 

[Judd]

I topped up DJW back in Nov 12 when it was under $4.00 and again in Feb this year at the $4.10 mark. I have some available funds so I had a look. To my surprise it's now around $4.70. Although it still has a yield of 5.5% before franking, it is selling at a 22% premium to its NTA. Nup. Not at the moment.

 

[Dona Ferentes]

Final dividend is 5.25 cents per share fully franked, down from 10 cents last year, and in accordance with the more flexible approach to dividends, as outlined to shareholders at the last half-year announcement.

Net Operating Result (which excludes the impact of open option positions and is therefore a better measure of the Company’s income from its investment activities) was $28.1 million, down 25.5% from $37.6 million in the prior corresponding period because of the decline in dividends received.

Dividend income for the financial year, particularly in the second half, was impacted by the deferment and reduction in the dividend of three of four major banks and reduced dividends from Alumina, Sydney Airport and James Hardie Industries. In addition, last year’s figure included special dividends from BHP, Wesfarmers and Mirrabooka Investments, none of which were repeated this financial year.

Portfolio Adjustments
The key focus for Djerriwarrh over the last 12 months has been to reinforce the overall quality of the companies within the portfolio, while maintaining a suitable balance between short term income yield and long term growth in capital and income. The number of holdings in the portfolio was reduced from 59 to 49 over the 12-month period to narrow the focus of the portfolio to better quality companies, many of which have the capacity to grow their dividends into the future.

Major sales for the 12-month period were predominantly as a result of the exercise of call options. This included positions in CSL and Wesfarmers, and Commonwealth Bank and National Australia Bank early in the first half of the year, before bank share prices came under pressure. There was also some reduction in the holding of James Hardie Industries, which remains a large position in the portfolio. Holdings exited through the year included AUB Group, Ansell, Worley and Treasury Wine Estates.

Purchases in the portfolio in the year were because of the desire to rebuild positions where stocks were sold as a result of the exercise of call options, participation in discounted capital raisings and to take advantage of weakness in shares prices as markets capitulated in March and April as the fallout of COVID-19 was at its peak. New companies added to the portfolio through the 12-month period were Auckland International Airport, InvoCare, BWP Trust (a REIT exposed predominantly to Bunnings Warehouse), ARB Corporation and ASX.

(don't hold; sold 3 years ago)

 

[kenny]

@Dona Ferentes do you think DJW can justify the higher (0.45%) fee given the minimal option strategy and yield enhancement touted as the reason to be in DJW?

Useful dates;

Interim Results Announcement: Monday 18 January 2021

Interim Dividend Ex-Date: Friday 29 January 2021

Record Date: Monday 1 February 2021

Last Election Date for DRP/DSSP: Tuesday 2 February 2021

Payment Date: Monday 22 February 2021

 

[Dona Ferentes]

@kenny , I used to hold some DJW but sold them a few years ago. I'm not sure enhanced yield works in the current low rates environment. It seemed to me they had lost their way and the higher yield came at expense of capital appreciation. Then the

more flexible approach to dividends

showed little in the tank, no reserved profits and no franking credit store.

Yes, the fees are high but that is as much because FUM isn't great. And besides, exposure is to an 'old' sector and that hasn't worked too well of late.

 

[kenny]

Thanks @Dona Ferentes Hmm, FUM not growing due to mediocre performance, uncompetitive fees and out of sync strategy. Also running out of time with dividend smoothing firepower and using COVID as an excuse.

On a positive note, it does offer a DSSP which I thought was only available with AFI and WHF.

 

[Dona Ferentes]

Half Yearly out today.....

struggling to get the income to pay a good dividend. :: Will pay an interim dividend of 5.25 cents per share fully franked, down from 8.75 cents per share fully franked previously. There was a significant decline in income from investments to $9.6 million from $17.9 million as companies suspended or reduced dividends through the period. The biggest reductions came from the major banks and BHP, whilst Sydney Airport was amongst a number of companies in the portfolio that did not pay a dividend during the half. . Income from option activity was $6.1 million, up from $3.3 million.


Operating the DRP at slight discount; and also a SPP announced for Feb

Portfolio changes; A bit of rotation out of banks and into broader 'industrials'. "In particular, as the market shifted its focus to "value" opportunities following the generally strong increase in the overall market, the share prices of these better quality companies which began to weaken provided Djerriwarrh with some good long term buying opportunities."

Acquisitions .. Cost ( $'000)
CSL ................. 20,095
ASX ..................18,113
Woolworths .... 11,993
Mirvac Group ... 7,024
Transurban ....... 7,009

Sales ................ Proceeds ( $'000)
ANZ Banking Group ........12,369
National Australia Bank .. 11,239
Goodman Group# ............ 7,895
South32 (complete sale) .. 6,011
Macquarie Group# ............ 5,885
#Sales as result of the exercise of call options

New Companies Added to the Investment Portfolio
Mirvac Group
ResMed
EQT Holdings
Fineos Corporation
Pinnacle Investment Management

 

[Dona Ferentes]

and 12 months on:

• Djerriwarrh seeks to provide shareholders with a total return comprising an enhanced level of fully franked income that is higher than is available from the S&P/ASX200 together with long term capital growth, delivered at a low cost. The enhanced yield is achieved through a bias to investing in companies with higher dividend income, produced over the short and long term, as well as using option strategies to generate additional income.
• The interim dividend has been increased to 6.75 cents per share fully franked, up 28.6% from 5.25 cents per share fully franked for the corresponding period last year. The increase was as a result of higher company dividends and improved income from option activities. None of the interim dividend is sourced from taxable capital gains, on which the Company has paid or will pay tax.
• At 31 December 2021, the yield on the portfolio (net asset backing) was 5.6%.
• A key feature of the improved performance of the portfolio and generation of option income has been the management of the option positions through the half.
• In the period we were exercised on a number of companies held in the portfolio because of share price strength. This included ASX, Macquarie Group, Carsales.com, Telstra, Woolworths, Sydney Airport and Goodman Group. In some cases, we were able to replace our holdings by subsequently buying back in at lower share prices, for example Macquarie Group. For the other companies listed above we are left with lower holdings although we may look to rebuild these positions over time when suitable opportunities arise.
  We were also active sellers of our remaining holdings in APA Group, Alumina, Orica and Origin Energy, and we reduced our positions in companies such as Brambles and Woodside Petroleum.
• Some of the capital realised from these sales was re-allocated into a number of other companies. This is a continuation of our portfolio strategy where we aim to maintain a diversified portfolio of high quality companies that can deliver Djerriwarrh the appropriate balance between income and growth.
  As a result, we added to a number of our key portfolio holdings at prices where we saw long term value. These major purchases included BHP, Wesfarmers, Coles, Commonwealth Bank, Westpac, Ramsay Health Care, Auckland Airport, Equity Trustees and CSL. We also actively added four new companies to the portfolio. JB Hi-Fi and SCA Property Group were purchased primarily for their attractive dividend yields. Cochlear and Domino’s Pizza were purchased for their attractive long term growth profile.

Call option coverage at the beginning of the period was 39%, which was maintained through July and August. After the market (as measured by the S&P/ASX 200 Index) fell from its mid-August high, our option positions profited as we made the decision to close out a significant number of these positions that were due to expire over September to December. Call options in companies such as ANZ, CSL, Commonwealth Bank, Transurban, Westpac, JB Hi-Fi, Netwealth and Woolworths were closed out with share prices lower on average, which enabled us to retain significant option income. As a result, we ended the year with lower than usual call option coverage in this group of companies.
During November and December, we started increasing our option coverage in selected companies including BHP, Rio Tinto, ASX, AUB Group, SCA Property Group and BWP Trust. In contrast we decided not to have any call option coverage in companies such as Cochlear, Domino’s Pizza Enterprises, Auckland Airport and Pinnacle Investment Management as we perceive these companies to have relatively more attractive capital growth potential.
Overall, call option coverage of the portfolio at calendar year end was 28%, slightly lower than our normal range of 30% to 40%.
In addition to our call option writing activities, we generated additional income through writing put options in companies including Coles, CSL, Woolworths and Transurban.
In terms of our overall option strategy to generate additional income, our goal remains to write specific single stock options against companies held in the portfolio, rather than setting an overall target for option coverage for the portfolio. This is done in order for Djerriwarrh to meet its enhanced yield objective, but only to a level where long term capital growth is not overly compromised.

 

[divs4ever]

now i have exited WIC , maybe i should look at this closely ( there is no direct replacement for WIC if the deal goes through )

cheers

 

[Dona Ferentes]

SC on DJW

Things Looking on the Up for LICs - ShareCafe

Friday’s December half figures from Djerriwarrh Investments gave us a good idea of the way most of the listed investment company sector will report their interim results.

www.sharecafe.com.au

 

[InsvestoBoy]

I always want to put money into DJW and get some theoretically uncorrelated return stream from selling options IV in the form of calls...

But then I look at their reports and I always wonder if anyone there has asked themselves, "we went to all this effort and we did marginally worse than if we had done nothing at all"

 

[divs4ever]

I always want to put money into DJW and get some theoretically uncorrelated return stream from selling options IV in the form of calls...

But then I look at their reports and I always wonder if anyone there has asked themselves, "we went to all this effort and we did marginally worse than if we had done nothing at all"

View attachment 145330

yes i do , and that is the primary reason i have resisted buying them ( so far )

however if the discount to NTA was to increase a ( fair ) bit more that calculation would change

this is certainly a LIC where opportunism ( timing ) would benefit the investor

 

[Belli]

I was asked about DJW a few days ago by one of mine. I don't know very much about it but a look at the dividend history didn't thrill me (From 26c in 2007 down to c 10c in recent times). Seems every time there is a fall in the market the share price gets hammered for some reason. Probably one for the brave or the foolhardy is what I said and left it up to them.

 

[divs4ever]

I was asked about DJW a few days ago by one of mine. I don't know very much about it but a look at the dividend history didn't thrill me (From 26c in 2007 down to c 10c in recent times). Seems every time there is a fall in the market the share price gets hammered for some reason. Probably one for the brave or the foolhardy is what I said and left it up to them.

View attachment 145360

yes that 'hammering effect ' happens in other LICs as well and in some cases i have taken advantage ( just not yet in DJW or MIR )

i suspect that is others trying to front-run the fall in NTA , whereas i prefer div. yield ( as a primary metric ) if the LIC has a relatively stable , low turn-over portfolio management , so a temporary drop in NTA ( and share price ) will attract my attention

and yes div. yield in several companies are quite low despite recovering share prices , so that reflects in the LIC payouts is the bitter pill you have to accept or reject

 

[Belli]

Hmm, somehow I don't think so to the extent implied.

 

[InsvestoBoy]

I was asked about DJW a few days ago by one of mine. I don't know very much about it but a look at the dividend history didn't thrill me (From 26c in 2007 down to c 10c in recent times).

mate you keep posting these CommSec price only charts, you shouldn't jump to conclusions without looking at the total return, especially for DJW.

Seems every time there is a fall in the market the share price gets hammered for some reason

What's happening is they roll down their calls as the market drops and then when the underlyings rally the upside is capped.

 

[Belli]

total return, especially for DJW.

Best I can do on that side of things.

 

[InsvestoBoy]

Best I can do on that side of things.

View attachment 145366

Looks more like this

 

[Belli]

Looks more like this

Interesting. Obviously I don't have access to your sources not being actively involved with charts and the like to any degree.

I understand DJW holdings mainly consist of those in the ASX 50 with options over them so it's fascinating it doesn't seem to get traction to any extent. However, it does seems to be adhering to its stated mandate. Up to each investor to decide of course which is what I have told one of my kids who asked about it.

 

[InsvestoBoy]

Interesting. Obviously I don't have access to your sources not being actively involved with charts and the like to any degree.

I understand DJW holdings mainly consist of those in the ASX 50 with options over them so it's fascinating it doesn't seem to get traction to any extent. However, it does seems to be adhering to its stated mandate. Up to each investor to decide of course which is what I have told one of my kids who asked about it.

View attachment 145370

Very popular in the US with products like QYLD selling calls on the NASDAQ-100 etc for those who want the monthly dividend for whatever reason even if it results in lower total return, something like 7B+ USD in this product alone.