By Gus McCubbing
This week an obscure Perth gold mining company offered shareholders a dividend for the first time in its nearly 60-year history.
And in doing so, it may have fired the starting gun on small and mid-cap ASX-listed companies looking to tap into the booming demand for dividend stocks following the federal government’s changes to capital gains tax.
Australians had already been piling into exchange-traded funds that are focused on dividends, bonds and cash ahead of the looming CGT changes, turbocharging demand that had been building since the Reserve Bank of Australia started raising interest rates.
Money flowing into cash and fixed-income-focused ETFs more than doubled in June to $1 billion from $494 million in May, according to Betashares.
Amid this growing demand, Alkane Resources, a producer of gold and antimony, announced on Tuesday that it would pay a fully franked dividend of 2¢ per share for the first time since it listed on the stock exchange in 1969.
Back then it was focused on oil and gas exploration in the Sydney basin. But it now operates two major gold projects – Tomingley near Dubbo in central west NSW, and Bjorkdal in Sweden – as well as the Costerfield gold and antimony mine east of Bendigo in Victoria and the Boda-Kaiser gold and copper porphyry project in central western NSW.
Antimony is used to make flame retardants and batteries and is key to making electronics and specialised military equipment.
The ASX announcement did not mention the CGT reforms as a reason for Alkane to start paying a dividend and chief executive Nic Earner told The Australian Financial Review that it was not a motivating factor, but he said there was no doubt the cash dividend would help attract investors.
He instead cited Alkane’s strong balance sheet and record operating cash flows of $174 million, but fund managers say otherwise.
“I’m certain that given the CGT reforms the dividend will be welcomed by investors,” Earner said of the payout, which is subject to certain audit requirements and final board confirmation.
ETF providers like Betashares and GlobalX have said that the tax changes, along with the RBA’s rate-hiking cycle and market volatility from the Iran war had contributed to a surge in inflows for dividend ETFs.
That is because from next year, individuals selling assets such as shares and ETFs will have to pay tax on the total investment gain, adjusted for inflation. Under the current system, investors are only taxed on half of the gains, known as the 50 per cent discount.
‘A remarkable coincidence’
GlobalX investment strategist Marc Jocum said the tax changes could encourage companies to pay out more dividends, or have higher franking credits, which have not yet been touched by the government.
Fund managers say the timing of 60-year-old Alkane’s maiden dividend, which comes just two months after Labor’s CGT changes were announced in the May budget, has all the hallmarks of such a move.
Lowell Resources Funds’ John Forwood said Earner had told a mining event in Melbourne earlier this month that the CGT reforms had influenced the decision to offer a dividend rather than completing a share buyback.
“Things are coming together nicely for Alkane, given the gold and antimony prices are strong, but it would be a remarkable coincidence for their first dividend in 60 years to come two months after the budget,” Forwood said.
“I would definitely expect the CGT reforms played a role.” He added that while he did not own Alkane shares, he was interested in the company.
Wilson Asset Management chairman Geoff Wilson, who has been a vocal critic of the CGT reforms, said he expected other companies would follow suit and consider increasing their payouts in light of the tax changes.
“100 per cent I expect to see this happen more and more,” he said.
“The only capital gains investors want now is in line with inflation, and the rest they want paid out as fully franked dividends. All company boards will be re-assessing how they allocate capital.”
Morningstar equity analyst Shaun Ler said the CGT changes had created a “comparative advantage” for dividend investors, as he added electronics retailer Harvey Norman and jobs platform Seek to his list of the 23 top ASX dividend stock picks.
“Despite the overall low-yield environment, companies prioritising consistent dividend policies are likely to command a premium,” he told clients on Wednesday.
However, Bhanu Singh, who is the Australian chief executive of Dimensional Fund Advisors, which is one of the largest shareholders of Alkane Resources, said investors should still focus on longer-term total return, rather than just chasing dividend yields.
“It’s true that capital growth is less attractive relative to dividends now because of the tax changes, but in our view the main thing investors should focus on is total return, which includes dividends,” he said.
Licensed by Copyright Agency. You must not copy this work without permission.