DJW - Djerriwarrh Investments

DJW reported a few days ago...

> The final dividend has been increased to 7.75cents per share fully franked, up 0.75 cents or 10.7% from last year. Total dividends for the year ending 30 June 2023 are 15.0 cents, up from 13.75 cents last year, an increase of 9.1%.
> Based on the final dividend declared and the interim dividend paid, the dividend yield on the net asset backing including franking is 6.8%. This represents an enhanced yield of 1.2 percentage points higher than available from the S&P/ASX 200 Index when franking is included.
> The use of options will typically reshape the profile of returns producing more immediate income at the expense of potential capital growth. Portfolio performance for the year, including the benefit of franking credits for those that can fully utilise them, was 14.2%, compared to the S&P/ASX 200 Accumulation Index on the same basis which was 16.6%.


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And a few movements in portfolio

DJW reported last month and has continued to outperform the ASX200.


It has been trading at around a 10% discount to NTA for some time now. Perhaps currently better value than an ASX tracking ETF?

Dona Ferentes said:

(don't hold; sold 3 years ago)

Click to expand...

and that decision seems timely, as the performance of DJW has been poor of late. Their supercharged distributions don't seem to have compensated for the loss of capital of late. Shares are now trading around $3.00.
At 31 March 2024, Before Tax NTA is $3.38 and After Tax NTA $3.32

The previous premium to NTA is gone


Maybe , the utilisation of Covered Calls - usually 30-40 per cent on assets - has not been effective in the declining, then very low, interest rate environment over the last few years.


However, I am thinking of building a new position in DJW as the high yield (above my pension drawdown) is attractive for my life cycle goals.

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I accept the 0.40 per cent management fee to achieve something I am not good at, nor have any desire to pursue (options). There is also a reassurance that Buy and Hold is appropriate, with the LIC well diversified and focusing on longer term assets

Results for Announcement to the Market
> The final dividend has been increased to 8.0 cents per share fully franked, up 0.25 cents or 3.2% from last year. Total dividends for the year ending 30 June 2024 are 15.25 cents per share, up from 15.0 cents per share last year.
> Based on the final dividend declared and the interim dividend paid, the dividend yield including franking on the net asset backing is 6.5%. This represents an enhanced yield of 1.8 percentage points higher than that available from the S&P/ASX 200 Index when franking is included.
> The final dividend will be paid on 26 August 2024 to ordinary shareholders on the register on 12 August 2024. Shares are expected to trade ex-dividend from 9 August 2024. There is no foreign conduit income of the dividend and no LIC gains are attached to the dividend.
> Portfolio performance for the year, including the benefit of franking credits for those that can fully utilise them, was 13.6%, compared to the S&P/ASX 200 Accumulation Index on the same basis, which was 13.5%.
> A Dividend Reinvestment Plan (DRP) and Dividend Substitution Share Plan (DSSP) are available.
....
> Net Operating Result (which excludes the impact of open option positions, is considered a better measure of the Company’s income from its investment activities and is the figure Directors have considered when setting the dividend) was $40.3 million. The figure for the Net Operating Result for the prior corresponding period last year was $39.0 million.
> Net Operating Result per share was 15.4 cents per share, up from 15.2 cents per share last year.
> Net Profit attributable to members was $39.0 million, down 0.3% on the previous corresponding period, equivalent to 14.9 cents per share (2023:15.2 cents)
> Revenue from operating activities was $36.8 million, up 2.9% from $35.7 million in the previous corresponding period.
> The interim dividend for the 2024 financial year was 7.25 cents per share fully franked (the same as last year), and it was paid to shareholders on 22 February 2024.
> Net tangible assets per share before any provision for deferred tax on the unrealised gains on the long-term investment portfolio as at 30 June 2024 were $3.36 (before allowing for the final dividend), up from $3.16 (also before allowing for the final dividend) at the end of the previous corresponding period.

We continue to focus on constructing a portfolio that will deliver a suitable balance between short term income yield and long-term growth in capital and income.

In the financial year a portion of our holdings in several companies were sold as a result of call option exercises because of share price strength. Key exercises were across major banks - National Australia Bank, Westpac and Commonwealth Bank of Australia and consumer discretionary companies JB Hi-Fi and Wesfarmers. The majority of these sales occurred in late March and April following the market’s strong run. In most cases, we chose not to buy back these stocks given they were trading at elevated share prices.

We were also active sellers of our small remaining holdings in James Hardie Industries, Temple & Webster, IAG and AMP. The capital realised from these sales was used to invest in what we consider to be high-quality companies trading at attractive prices.

The largest purchase for the 12-month period was Telstra Group. Market concerns about Telstra’s pricing power in mobile plans drove a fall in the share price, which allowed us to substantially increase our holding at very attractive prices.

We also significantly increased our position in Woodside Energy on share price weakness. The company gives us exposure to a globally unique portfolio of high-quality liquefied natural gas and oil assets, which underpins solid cash flows and fully franked dividends.

We chose to add to our holding in Woolworths as it faced intense regulatory scrutiny during the financial year with multiple inquires reviewing the company’s conduct and grocery pricing. Although this headwind is ongoing, we believe the large fall in Woolworths’ share price underappreciated the defensive nature of the company’s earnings, superior store network and leading online offering.

We added three new holdings during the period – Newmont Corporation, Mineral Resources and IDP Education.

Our position in Newmont resulted from its takeover of Newcrest Mining in October 2023. We purchased Newcrest prior to the deal being completed, which enabled us to benefit from the large special dividend that was paid to Newcrest shareholders as part of the takeover. Newmont is a diversified gold and copper mining company that owns high-quality assets in attractive jurisdictions. We think Newmont offers a good mix of income and growth along with some extra diversification for our portfolio given its gold exposure.

Mineral Resources is a diversified mining company. Its largest commodity exposure is lithium, but it also has operations in iron ore, energy and mining services. We rate the management team highly and back it to deliver strong earnings growth, which is underpinned by the company’s iron ore and lithium production growth.

IDP Education is the leading global provider of English language testing and student placements to tertiary institutions. We are attracted to the company’s long-term outlook for earnings growth given there is a significant opportunity to gain market share in large addressable markets. The company’s share price has more than halved in the past 18 months as a result of regulatory changes aimed at curtailing the number of international students across IDP’s key markets. Despite this we believe the sector still has potential for strong structural growth, with the share price providing an attractive entry point.

At 30 June 2024, the Investment portfolio comprised holdings in 47 ASX and NZX listed companies with a total market value of $845 million. We finished the year with a net cash position of $33 million.

> The interim dividend has been set at 7.25 cents per share fully franked, the same as the corresponding period last year. It will be paid on 24 February 2025 to ordinary shareholders on the register on 31 January 2025. There is no conduit foreign income component of the dividend and none of the interim dividend is sourced from taxable capital gains.
> Based on the interim dividend declared and the final dividend paid, the dividend yield including franking on the net asset backing is 6.4%. This represents an enhanced yield of 1.9 percentage points higher than that available from the S&P/ASX 200 Index when franking is included.
> The portfolio return for the six months to 31 December 2024 including franking was 4.4%. The S&P/ASX 200 Accumulation Index return including franking over the corresponding period was 7.6%. The 12-month portfolio return to 31 December 2024 including franking was 8.5%, whereas the S&P/ASX 200 Accumulation Index return over the corresponding period including franking was 12.7%.

Djerriwarrh’s relative underperformance over these periods was impacted by the underweight position in the Banking sector which produced very strong returns over the calendar year as bank valuations rose to historically high levels. This meant there were a number of call options exercised during the period in the major banks, and we considered valuations did not warrant reinvestment at these high prices. In addition, given high valuations evident across many parts of the market,

Djerriwarrh had a net cash position which also detracted from relative performance.

During the period a large portion of our holdings in a number of companies were sold as a result of call option exercises on the back of share price strength. This included Macquarie Group, Commonwealth Bank, Westpac, National Australia Bank and JB Hi-Fi. We consider each of these companies to be high quality but expensive in terms of valuation, particularly the banks which are trading at historically high valuations. Therefore, we chose not to buy these stocks back following the option exercises. While we still have a position in these companies, our holdings are significantly lower today when compared with six and twelve months ago.

During the period we completely exited the position in Mineral Resources given the disappointing corporate governance practices that have emerged. We were also active sellers of our small remaining holdings in Ramsay Health Care and FINEOS Corporation, both of which have been disappointing investments.

The capital realised from the option exercises and active sales was primarily used to invest in what we consider to be high-quality companies trading at attractive prices. Some capital was also retained, meaning we have a higher cash balance compared to 12 months ago.

We took the opportunity during this period to significantly increase the size of both Rio Tinto and BHP in our portfolio due to their attractive valuations, particularly their high fully franked dividend yields. We judge these two large mining companies to be high quality in terms of their assets, management and balance sheets. Both of these companies have traditionally been core holdings for our portfolio. We also added to our holdings in Coles Group, Newmont Corporation, CSL, Woolworths Group, Woodside Energy Group, Cochlear and Transurban Group.

Ampol (formerly known as Caltex) was the only new holding added to the portfolio during the period. Ampol is Australia’s leading vertically integrated energy company. It operates businesses across convenience retail in Australia and New Zealand, as well as the refining, supply and marketing of fuel. We believe that Ampol is a better business today compared to five years ago. The earnings mix is better, the balance sheet is solid, the quality of the network has improved and the management team has demonstrated good capital allocation and discipline. Ampol primarily offers our portfolio an attractive level of dividend income, especially if trading conditions in its refining business improve from the current cyclically low levels.