I'm wondering precisely what underwritten dividends are, and what they mean for the companies and shareholders of said companies. Eg Today BPT announced that its special 2 cent dividend to be paid soon was being underwritten by Comsec. Now unless Comsec has become a registered charity they must get something out of it. What do BPT and its shareholders get out of it???
Underwritten dividends?
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It means the dividend reinvestment plan is underwritten, meaning any shares that are not taken up in the drp will be sold at the drp price to a third party.
It's basically a mini capital raising of sorts.
Comsec take a few (say 1%) for doing the underwriting.
BPT get to pay a dividend without actually losing capital (assuming fully underwritten)
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An underwritten dividend reinvestment plan indicates that the directors think the money paid as dividends is better retained on the balance sheet.
It's generally a sign that the company's dividend level per share is unsustainable.
It's generally a sign that the company's dividend level per share is unsustainable.
Sort of agree with the last comment. If you keep doing underwritten DRP's then the dividends become sustainable, albeit via lower EPS in the future due to more share issuance. If the company has lots of franking credits, these really only have value once distributed to share holders, so it can make sense to have a high payout ratio to distribute these and then underwrite the DRP to effectively get the capital "back"
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Not really, a DRP just means that the company is earning good cashflow and can afford to pay a dividend, however It also has lots of growth opportunities in front of it and would like to conserve some of the cashflow to fund growth.
IF the funds from the DRP are used wisely on good growth plans then they can increase earnings per share.
Say BPT is currently trading on a PE of 16, As long as the funds are used on a project that earns more than 7% pa then it will increase earnings per share.
