Djerriwarrh delivered strong returns to shareholders with its half-year financial results for the period ending 31 December 2021, lifting profit, the net operating result and dividend.
Managing Director, Mark Freeman, discusses the LIC’s latest financial results and outlook for the rest of financial year in this article.
Djerriwarrh seeks to provide shareholders with a total return comprising an enhanced level of fully franked income that is higher than the S&P/ASX200, alongside long-term capital growth. Our half-year results achieved this with the six-month return including franking at 6.7 per cent, above the benchmark’s return including franking of 4.6 per cent. Our profit for the first half rose 142.2 per cent to $19.6 million, from $8.1 million a year earlier.
The results reflect our strategy of investing in a diversified group of high-quality companies that can provide a good level of dividend income over the short and long term, as well as companies that can deliver good capital growth. We use option strategies to generate additional income and our market outperformance remains consistent. Over the 12 months ending 31 December 2021, our portfolio returned 20.6 per cent including franking, compared to the benchmark’s 18.7 per cent.
Djerriwarrh’s interim dividend rose nearly 30 per cent in the half-year period. The interim dividend increased to 6.75 cents per share, fully franked, from 5.25 cents per share in the prior corresponding period. The interim dividend was also higher than the final dividend in 2020-21 of 5.75 cents per share, fully franked. Higher dividends from the companies in our investment portfolio and improved income from option activities drove the increase.
The trend in dividend payments in companies in the portfolio was generally positive as companies bounced back from the impact of the COVID pandemic. BHP, Westpac, IAG and NAB generated significantly higher dividends. We also benefited from a solid lift in dividends received from Equity Trustees, ASX and Woolworths as dividend rates were higher and we increased our holdings in these companies.
The more significant contributors to Djerriwarrh’s six month portfolio performance included Sydney Airport, Mainfreight, Macquarie Group, ASX and Carsales.com.
Our half year profit includes income from investments and income from option activity. Income from investments rose to $15.1 million, from $9.6 million. Option income generated over the half-year was $7.9 million, up from $6.1 million a year earlier. However, we believe the Net Operating Result, which includes income from dividends and our option strategies but excludes open option positions, is a better measure of our income from investment activities. Our Net Operating Result rose 54.4 per cent to $18.1 million.
The outlook for company dividends for the next six months looks positive. In the longer term, iron ore prices are likely to determine the dividends paid by major miners BHP and Rio Tinto, and the profitability of the banks will have a considerable influence on dividend levels across the Australian share market.
Inflation, interest rates and COVID-related disruptions to supply chains remain global issues. Despite uncertainties around these issues, we continue to believe that our diverse portfolio of high-quality companies can produce an attractive level of income and capital growth over the long term.