South32 Ltd ADR slashed its dividend
On February 13th South32 Ltd reported their 2020 half year financial results. I have missed this, and I was caught by surprise of what I read. But before I dive into the figure, just a quick review of the company.
South32 is a globally diversified mining and metals company. They produce bauxite, alumina, aluminium, energy and metallurgical coal, manganese, nickel, silver, lead and zinc at our operations in Australia, Southern Africa and South America. South32 are also the owner of a high-grade zinc, lead and silver development option in North America and have several partnerships with junior explorers with a focus on base metals. Their purpose is to make a difference by developing natural resources, improving people’s lives now and for generations to come, and to be trusted by their owners and partners to realize the potential of their resources.
The half year report should be read in conjunction with the Financial Report for the year ended 30 June 2019. In the table below you can see the major metrics I have found in their report.
|US$M||H1 FY20||H1 FY19||%|
|Profit/(loss) after tax||99||635||down 84%|
|Underlying earnings||131||642||down 80%|
These are not great numbers, South32 is down on all major metrics. This doesn’t make me happy. One of the reasons is the trade war between China and the US which hit commodity prices in key industrial products. Prices of South32’s top three commodities – metallurgical coal, aluminium and manganese slumped in 2019
Graham Kerr, South32 CEO
“Against a challenging backdrop for our key commodities we delivered another strong operating result with production for the majority of our operations tracking on or ahead of schedule. Our operating costs trended down in the half and we have lowered our cost guidance across most of our operations.
Demonstrating our strong financial position, track record of returning excess capital to shareholders and positive outlook for our business, today we announced a fully franked interim dividend of US$54 million and a US$180 million increase to our capital management program, including US$54 million which will be returned via a fully franked special dividend.”
The Board has resolved to pay an interim dividend of US 1.1 cents per share (fully franked) for the half year ended 31 December 2019 and a special dividend of US 1.1 cents per share (fully franked).
The dividend and special dividend pay date is April 2, 2020 to shareholders of record on March 6, 2020 (ex-dividend March 5, 2020).
South32 Ltd has been paying dividend ever since they were spun-off from BHP Billiton. That is also why I own this stock. If I look at the dividend history, then I see a declining trend line.
In this post I give the dividend for South32 Ltd ADR (SOUHY). South32 American Depositary Receipts (ADRs), each represent five fully paid ordinary shares in South32.
|2020||Interim Dividend (incl special dividend)||0.11|
As you can see, SOUHY slashes its interim dividend by 65%. Ouch!
My Vrijheid Fonds consist of 12 shares of SOUHY. My total dividend loss for 2020, due to the SOUHY dividend slash, is approx.€ 0.70. Okay this is not much, but it still hurts.
Because SOUHY is just 0.07% of my Vrijheid Fonds, (or better put: Negligibly small) I decided not to act immediately but take some time to reflect. In 2019 I have been paid a total of €4.73 by South32, and I decided back then that I would keep these shares, because this was more than what I could have gotten from a savings account. And if I would have reinvested this money, I had to find a stock with a least a yield of 4.7% to come up with the same yield as I have stuck with the shares. After weighing both options, I decided back then to keep my shares of South32 Ltd-ADR.
Now we have a new situation. So, in the next couple of days, I will do a new evaluation of SOUHY for my Vrijheid Fonds. However, since South32 keeps reducing its dividend, I think it will be time to take action in the near future.
Do you own SOUHY or South32 Ltd? What is your action after the dividend slash?
I like to hear from you.