EMECO Holdings Dividend Policy

Posted: September 9th, 2013

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EMECO Holdings Dividend Policy

EMECO Holdings has a dividend policy, which entails issue of dividends to the shareholders on an annual basis.

EMECO Holdings has a dynamic dividend policy that has been changing over the years. The most recent dividend reports in 2012 for EMECO Holdings Ltd displayed a dividend of 0.06 Australian Dollars that were issued 100% fully franked. This represented an increase by 20% from the previous year. The analysts who made the forecast predicted a dividend of about 0.07 AUD (EMECO Holdings Limited 12). The trend in the allocation of dividends per share skyrocketed in 2011 to record the highest dividends at 10 billion AUD. The dividend per share forecasts for 2013 up to 2015 showed a steady increases from six billion to 7.6 billion AUD. The EMECO board had also revised its dividend policy in February 2012 (Engineering News line 39).

The company made good use of Walter’s Model of reinvesting the 2011 windfall in a new fleet. EMECO also embraced the Dividend Reinvestment Plan (DRP) to use the profits to service its ongoing financial status and as a way of financing for EMECO’s new fleet and keep cash for further growth. Of the three companies offering dividends to their shareholders, EMECO dividends were the highest followed by UGL limited and lastly Clough Limited (Clough limited 38).

Earning Per Share (EPS), Dividend per Share (DPS) and Dividend Payout Ratio

The EPS shows the amount that shareholders earned as profit owned for their share while DPS indicates the actual number of shareholders who will get paid dividends from earnings. The Dividend Payout Ratio refers to the percentage of profit that will be allocated to paying dividends. Currently, EMECO has an EPS of 7.9 cents and a DPS of 2.02 million AUD. The global financial meltdown of 2008 affected the growth of EMECO slightly in 2009 (Engineering News 23). The dividend payout ratio was also very stable and gave the shareholders confidence in their investments. EMECO’s dividend policy has always ensured that the shareholders receive between 85 to 100%of the earnings as dividends on their shares. Comparison with other rival companies’ dividend policies shows how advanced and ambitious EMECO is.

Figure 1: rate of dividend for EMECO from 2010-2015

From the predictions of the possible rate of increase in the dividend, the highest level of dividend payout is set to be in the year 2012. This could be attributable to relatively favorable climate of operation. However, from the same year the dividends are set to decline, which could be attributed to the reinvestment of the funds accrued by the organization, which could have been possibly used to issue dividends. Re-investment of funds usually results in the eventual growth of the organizational value as well as the share value of shares held by the investors in the organization.

On the other hand, the holding of a stable dividend issued to the shareholder on annual basis is usually a healthy indicator to the shareholders of the presence of stability in terms of organizational management as well as the source of income in the organization. Hence, it forms an attractive basis for the organization to market itself to the potential investors in the market.

A stabilized dividend issue in the preceding year from the year 2012 is an indication of the presence of stability in the organization in terms of accrual of revenues.

However, over the periods provided in terms of the comparison of the issue of the dividend the issue of shares is different EMECO exhibits a highly volatile dividend issue ratio. This is unhealthy for an organization seeking growth in terms of additional investments (EMECO Holdings Limited, 27). Investors are usually driven by the presence of security and stability in terms of their resources or investments.

Hence, to establish a relatively stable dividend issue ratio there is dire need to ensure that there is stability in terms of the source of income for the organization. This is achieved through better management and operational strategies ensuring increase in revenues and reduction in costs of the organization. Stability in turn relates to the attraction of higher value investments due to the presence of assurance to the investors of a relatively stable source of income.

Work Cited

Clough Limited. Annual Report 2006[Online]. 2011. Accessed on 15May 2012. Retrieved from http://www.clough.com.au/images/Investors/PDF/2006%20Clough%20Limited%20Annual%20Report.pdf>

EMECO Holdings Limited. Annual Report 2006[Online]. 2011. Accessed on 15May 2012. Retrieved from http://www.emecogroup.com/upload/pages/annual-reports/ehl-2011-final-glossy-annual-report.pdf

Engineering News. “Company Announcement: Emeco Delivers Strong FY12 Operating NPAT of $71.1m and Announces Share Buy Back.” Engineering News Online. Accessed on 24 October 2012. Retrieved from http://www.engineeringnews.co.za/article/company-announcement-emeco-delivers-strong-fy12-operating-npat-of-711m-and-announces-share-buy-back-2012-08-21