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Sorry meant thanks Jatw
Thanks, Jawt
Don't understand your enthusiasm about IMB, Thronegames ,"the next two quarterly dividends are over double the previous two". So what? They are also lower than they were 5 years ago. Is that relevant? The reason they are over double is similar to the reason M&Gs final was more than double it's interim - they simply chose to pay the bulk in the second half. We need actual dividend rates in order to compare against M&G not a meaningless internal ratio. Has the next IMB quarterly div even been announced yet, let alone the one after it, I thought it was due next week? Even assuming your assertion over future dividends is correct, by my calculation it only results in a short term yield of about 5.4% compared with well over 6% for M&G, admittedly over a slightly longer period. Over the longer term, M&Gs dividend seems more sustainable (better coverage), more consistent, more reliable, and more ethical.
candidinvestor is correct that the M&G policy is for the interim to be roughly a third of the previous years total, not the current years, however this years declared interim was actually more than one third of last years total. If the ability to progress the dividend was uncertain, the board could have held the interim, effectively delaying the decision until final results were known, but they chose to increase it, suggesting that ongoing progression of the total dividend is planned.
If we assume progression, we can deduce that the final divi this year must be greater than 18.23p (last years total) minus 6.1p (this years interim), i.e. more than 12.13p. Even a modest 1% progression of the total would bump the final up to 12.4p
Oh one thing I forgot ..could you point me to the slide which referred to the funding of the dividend payout , and where the dividend payout is increasing as a percentage ...this is a key piece of information I think
Regards
JatW...thank you very much for getting back to me so quickly .
You have explained lots of things to me which have given me more confidence in the sustainability of the dividend .
I take your point fully about the high dividend base ..although this is against a share price of below £2.00. On a share price of above £2.50 which it has reached , the dividend only translates to 7.3 %. L&G is currently 6% with its shares standing at a 12 month high , so maybe it isn't too much out of kilter
I do agree with you though , they did set the bar high to begin with , which has now created a high expectation amongst share holders .
Also I take your point about a new CEO coming in and switching the balance between funding dividends v funding future growth .
From a shareholder perspective, the loss of dividend should be cancelled out by a larger increase in share price .
Notwithstanding this , I still prefer a higher dividend , because once it has been given it can't be taken away , whereas the market and share price can be fickle
Overall then , you suggest it's a solid share which is reassuring
Incidentally , when I looked at the sensitivity table , I saw the impact that reductions in interest rates would cause ...they led to a reduction in the solvency ratio.
This is very interesting, conversely if interest rates rise which is the consensus view in the future , then will the solvency rate increase ?
Just one final point that you didn't cover... Owing presumably to the temporary fluctuations , net value of assets on balance sheet fell to £5.0 billion or £ 1.92 per share from £5.5 billion of 2.12 per share at the end of the year.
Ultimately , performance of client funds and level of dividends are reflected in net asset per share ?
Does this worry you at all ?
One final observation ..exchange rate movements can have a large impact on some of the final numbers..very often goes unnoticed , but it was evident in one of the slides
Is there anything that does worry you about the company and its prospects ?
Regards
Is the dividend sustainable?
It certainly is if the capital generation plan is met so that covers a few years.
Adverse market movements could have an effect. The sensitivity analysis of the capital position to certain shocks will give you an idea of how much the markets would need to fall to hit potential dividends…..an SCR below 150% would start to impact dividends so there is a large margin of safety in current market conditions.
That said….a new CEO may want to rebase the dividend to invest more in the business. I doubt mgmt would have set the dividend so high if they thought they would be one of the highest yielding shares ont eh FTSE. It is a difficult situation to change unless there is clear growth in the underlying business.
Overall, I think mgmt would say they intend to keep the dividend at its current level with modest increases. The investor presentations are useful in this respect as they do show how mgmt will fund the business and dividends….watch for changes several years out they indicate the dividend payout % is rising if it gets above 70% it is getting less sustainable.
Is MNG getting stronger?
The capital position is stronger and the capital generation target has been raised which indicates management confidence. The new business is now designed to be capital light which should mean low capital s needed to fund new business, the run off of the annuity book naturally generates capital each year which is earmarked for debt repayment so the debt ratio will fall over the next decade.
The savings and asset management business are more stable being effectively a fee x asset value less costs. These are geared to markets and delivering investment performance to grow the assets being managed. MNG has not performed well over the last few years but mgmt seems to be saying it’s investment performance Is improving.
Overall I would say the company is getting stronger and the results more resilient. However growth is not yet seen in assets under administration or management…..so any growth story needs to be proven which may be why the sp has been rather flat.
JatW...you are obviously very knowledgeable about the solvency ratios and minimum ratios required etc and the workings that go into them.
Can I please ask you 2 questions based on your knowledge views and opinions
1. Is MNG. becoming financially stronger or weaker since it broke away from the Pru ? Any thoughts on the outlook for the future ?
2. ( a ). Based on what you have read and are aware of, are the current dividends sustainable / progressive over the next few years ?
( b ). Should the short term fluctuations in asset values they refer to in their interims , be a source of concern to shareholders ..does this affect affordability of the dividend ?
It's just that I noted the net assets of MNG when everything is accounting for, fell by £500 million at the half year and now stands at £5.0 billion , down from £5.5 billion at the previous year end.
Your views are sought and would be much appreciated
Thank you
Karv
The solvency 2 capital ratio is the total of capital (surplus assets over the best estimate of liabilities) divided by the risk margin. It shows the value of assets over and above that needed to meet the regulatory minimum.
Assets and liabilities are both v large numbers and are assessed against the best estimate.
The best estimate of liabilities is the value generated by using the central actuarial assumptions.
Risk margin (your 5.4bn) is what is needed over the best estimate liability to cover liabilities for an estimated 99.5% of potential outcomes produced by the SII models which are approved by the regulator.
Annuities feature heavily here because investment returns could be lower than assumed when pricing the annuity and people with annuities may live longer than expected.
On the assets side quality of assets is important. Firms like MNG, LGEN, AV using a bespoke SII model, will want to operate at SCR of 160-180%. An SCR around 200% indicates there is headroom to pay out dividends to shareholders, reduce assets by debt retirement and share buy backs.
The quality of assets is an important consideration.
Debt in the form of bonds issued by the company are included
TMTP is an adjustment between previous solvency and solvency 2 requirements and reduces until it is zero in about 10 years time. This is a transitional credit that is not a real asset hence some analysts would exclude this, but annuity companies needed this to survive under SII regime which requires a lot more capital than previous regimes….neither is correct, it is just that SII provides higher levels of guarantee that the company can meet its liabilities.
The 3.3bn present value of future shareholder transfers represents how much the WP fund is worth to the shareholder (£200-250m for the foreseeable future discounted to today). It is a large number extrapolated into the future and discounted back….it is a real asset that the company could sell (at a discount).
Sorry I have forgotten what your q was
I have a couple of observations to make.
1. Apart from on moral grounds , I am avoiding IMB shares because of its high levels of debt...around 4 times EBITDA is a high level of debt . In my view they should be repaying debt rather than making dividend payments .
2. Comments have been made about dividend payments and how the interim dividend was equal to one third of total dividend ..
It is important to add that the policy one third of total dividend being paid at the interim , actually refers to one third of PRIOR years total dividend...which is NOT necessarily one third of THIS years total dividend
That is why I posed my question earlier about the true financial position as portrayed in their interim accounts.
I don't like reading " adjusted net profits " my cynical nature tends to translate adjusted into " fudged "
I might be wrong on this occasion.. views sought ..
Regards
I have a question on p29 on the half-year report if anyone wants to answer it ........
Shareholder Solvency II coverage ratio
Total 10.8 billion
£3.2bn debt at nominal value
29.6% Solvency II Leverage ratio
Other Own Funds , including: £1.1bn
£(1.8)bn TMTP 2 risk margin ..........all add up to 7.5 billion
Present Value of future Shareholder Transfer (PVST) from WithProfits Fund 3.3 billion
Total 10.8 billion
198% £5.4bn Solvency ratio surplus Own Funds
Against
5.4 billion requirements
0.5b Sectoral
3.5b Shareholder Annuities & Other
1.4 Capital requirement on PVST 3
On page 29 on presentaion pdf on
https://www.mandgplc.com/investors/results-reports-and-presentations
My questions are in the real term are the 1.4b capital requirements the actually required coverage required from the 10.8 billion. Why is 3.5b Shareholder Annuities & Other also counted against the 5.4b list?
Also is the 2.2b self-generating funds the difference between the 5.4 billion surplus and the 3.3 billion debt that is counted?
BlahDoh. You say MNG has a "a compelling rate of return, possibly unique on the market?" Maybe you're right. But check out IMB where the next two quarterly dividends are over double the previous two. Annual Yield at today's price just over 9% but given the double amount of next two dividends paid over a 4 month period, it's an incredible return over that period! I've made the decision to add MNG to my portfolio on Monday. Looks tempting to me at this price. Was going to add more IMB but cigarettes, like Big Oil are not well loved by the market.
So the final dividend could be even more than 12.5p if the last increase was 0.31p. If it is the same increase the final dividend will be 12.54p.
I think investors will eventually see the real value of a steady dividend and a yield of almost 10%. Would not be surprised to see this rise to £3 within the next year.
I think you've got one of the numbers wrong manfor - final increased from 11.92 to 12.23? That would give an even higher result using your reasoning, but it seems doubtful that they would use your method i.e. adding literally "the same" amount as last year. A percentage increase seems more consistent with the progressive dividend policy?
If the final dividend is increased by the same percentage as the interim (1.66%) it will be 12.43p, but interims are sometimes more conservative than finals, so arguably your conclusion is reasonable, even if your data and methodology are dodgy ( :
The final dividend is just as likely to be 12.5p or higher. The increase in the final last year was from 12p to 12.23p so the same increase again would be 12.46p.
So the final dividend will probably be 12.5p.
BlahBlahDoh
Thanks for the info, I agree, the interim divi was higher, so it's Logical the Final will also increase.
Appreciate the added information.
GLA invested here
Another reason currently supporting a 12.35p- ish "final" dividend is that the interim was 6.1p in September. The policy is that the interim will be roughly one-third of the total, suggesting a 12.2p final, but having increased the interim it seems logical to increase the final proportionately, from last year's 12.23p
By the way, payment of that "final" is now less than six months away. If the prediction is accurate that is a compelling rate of return, possibly unique on the market? The closer we get, and the lower the SP goes, the more compelling it becomes. One strategy could be to buy on speculation of a SP hike as the divi approaches, selling into the rise if it exceeds, say 7%, or else just holding to collect the divi. Nothing is risk free, but the downside here seems very limited?
A bit rude calling us "Members" Manu ( :
Bit early for a declaration of the "final" divi too - not due until next March
Barring any shocks It should be in the region of 12.35p - reasoning is declared dividend policy, history of absolute adherence to that policy during extreme conditions, proven ability to pay, and more than adequate coverage.
Hi Members,
has a Dividend been declared yet, or is this awaiting Profit results confirmed, ?
or,
Has anyone a reasoned prediction ?
Thanks in anticipation