One of the key components in the Company’s ability to pay a high yield is its approach to selling options over part of its investment and trading portfolio. This generates current income from the option premium Djerriwarrh receives for selling the options.
The amount that the Company receives from selling options depends on a number of factors:
In an environment where the Company believes the market is more likely to rise, then we would tend to have a lower level of the portfolio covered by options to give the company more exposure to any lift in the capital value of our investments.
LICs have a fixed number of shares which are traded on the Australian Securities Exchange. The closed-end nature of the fund enables a focus on long-term portfolio performance without having to deal with funds moving in and out of the portfolio due to changes in investor sentiment.
We invest in companies that typically have high quality businesses and that are financially sound. It is our view that such businesses generate superior returns over the long-term. This approach has historically produced attractive returns and fully franked dividends over time for shareholders.
Djerriwarrh has an experienced investment team that actively reviews current and potential investments across a broad range of companies. When selecting investments for our portfolio we look for a strong management and board, sustainable competitive advantage and sound financial metrics, including return on investment, profit margins, cash flow and acceptable levels of debt. This approach leads to a portfolio which is typically between 50 -70 companies, most of which have an active options market in their shares.
Djerriwarrh receives dividends from the companies it invests in as well as other income. The Company pays out a high percentage of operating profits as fully franked dividends. Dividends are able to be sourced from current year profits, retained profits and profits from the sale of investments. Fully franked dividends are paid twice a year. Shareholders can choose to reinvest these dividends via the DRP to grow their investment over time.
When shareholders receive a franked dividend it means they are potentially entitled to a rebate on the tax already paid by the companies Djerriwarrh invests in. Franking credits attached to the dividend are sometimes known as imputation credits.
There are two main types of brokers. Full-service stockbrokers are a dedicated stockbroker that will typically offer a broad range of services including general advice. Full-service stockbrokers may charge a higher brokerage fee than online brokers. Share Trading Platform (Online Broker). These are non-advisory, share-trading platforms that gives you access to buy and sell shares online, typically for a lower cost per trade. Most major financial institutions have online brokering services.
Once you have set-up your broker account and have funds available in your broker account, you are ready to buy shares in Djerriwarrh (ASX code: DJW). There is no set limit on the number of DJW shares you may purchase, however your broker may apply a minimum amount (typically $500). You can purchase (and sell) Djerriwarrh shares as often as you would like, but please be aware of the cost of brokerage that is charged by your broker.
Once you have become a shareholder in Djerriwarrh you will receive a welcome letter from our share registrar, Computershare, with details including your Holder Identification Number and how to update your bank details (to receive your dividend) or participate in the Dividend Reinvestment Plan (DRP).