The original question to this thread asked: 'How safe is the dividend'?
1) IMO in the short term; safe.
2) Medium term; safe.
3)Long term; safe-ish except to say at the current rate of continuing to fail in covering the dividend combined with any unexpected events unforeseen by the company that would require more access to free cash flow then there'd be minimum leeway to avoid at least freezing the dividend, and if no improvement eventually cut the divi.
This is what happened recently to Vodafone. The dividend wasn't covered - but up went the chorus but it's covered by free cash flow! Came a newly promoted CFO qualified accountant to the role of CEO - he said authoritively the dividend is being held because free cash flow is sufficient to ensure it is. There will be no cut to the dividend.
The SP soared up on that news, then came the annual results, and the CEO announced (barely 6 months since last November after promising it would be maintained) that the dividend would be cut after all.
The Free cash flow was fine. But it failed to protect the dividend. Too much of it was being used to fund the shortfall from net profit not meeting the dividend bill in full. Funds were now needed elsewhere (for 5G).
So, dismiss the Dividend Cover ratio a metric that is designed to warn and protect the investor, and ignore that the dividend is not covered at your own (long term) peril. You wouldn't be the first to swallow wholesale that free cash flow will protect forever. It will protect an uncovered dividend, yes, but only for a limited period.
It's poor financial housekeeping to continually use part of it to fund unearned dividend increases beyond and above all of each year's net profit. The result is increasing debt and the current year is on course for the highest debt ever recorded for IMB.
Read page 6 on "Dividend" in the report. Nowhere does the CEO state that the divided is covered. Nowhere! But he admits it isn't indirectly by saying "cash generation" (free cash flow) will "support" the dividend. He would have no need to use the word support if the divi was covered from net profits - It isn't. And that's why I don't rate him, for being economical with the truth. A strong Free cash flow is an excellent indicator of a company's health and IMB's is truly excellent. But nothing will stand abuse year after year, after year.
It was no accident the CFO was asked about the state of the divi, by the DB analyst. The analyst and the wider market knows it's not covered; hence why the question was asked in the first place! It wasn't asked as a filler. It was a loaded question and the CFO was dishonest in not admitting it wasn't covered, and ran to hide behind free cash flow for diversionary tactics.
I intend addressing the remaining points in my post below in the coming days, including (for reasons of balance) a variety of metrics that show IMB in a favourable light.
I will expanding on that (I'm almost free) hopefully by the weekend, dividend, the confusion by some of over reliance on depreciation and amoritisation as if free cash flow will solve all problems.
Needless to say I don't rate the CFO nor the misdirection by the CEO and will explain why (and that outstanding matter of potential SP support areas).
" A pint of blood? Have you gone stark raving mad? I mean I came here in all good faith to help my country. Now I don't mind giving a reasonable amount - but a pint?
Why that's very nearly an armful! "
The Blood Donor episode :)
Yes having probs with LSE site, and also saying not secure anymore - had to use beta version just to post this.
Well I like this reducing of posts to one per week (1 per month would be better) but the truth is I've been busy away from home and remain so until the middle of next week with only a small amount of free time late at night, daily. So much for willingly reducing the amount of posting of my own free will.
What did you think of the drift back to the shelf edge closes on 201 with intraday visits to 200, in recent days? That wasn't in the script
- Was it BT announcing 90% of it's real estate property is being sold off?
Then instantly forgotten in a day, and this back-on-course bounce today? - Was it new CEO share purchases?
Just shows sentiment rules, before facts, before fundamentals - before truth, before everything. Ultimately just a couple of dings in the path of the newly forming uptrend.
So, if this 207p holds and builds from next week, then what next?
IMO, a push onto 200-teens (Preferably slowly). And then on to that gap-closing, all the way up to possibly 220 area.
Whatever, both the big move today, and that earlier in the week of low 190's to well over 200 in one-day, are a bit unsettling. It's having the same effect as the rapid fall since results day earlier in May (never mind the last 6 months or so) but in the opposite direction - rushing out of oversold and hurrying up to higher strength ratings with the prospect of racing into overbought, with inevitable results.
Never liked over fast movements in 'elephants don't run' shares like BT. It shows too much emphasis on ephemeral, fickle sentiment, and not enough on fundamentals.
"Ultra short" term trend, has been bullish since the beginning of week.
It's a start.
Shorter term/medium term trends almost just kissing as of tonight suggesting they too are close to crossing to the bullish upside.
Should they do so, that IMO will be a sit up and take notice moment.
Long term heavy duty trends still have the long-faced downers. Been that way since 2016. That's the heavyweight championship ultimate prize to win, the long term trends - not these lesser trends. But you have to start somewhere and last May to end of November looked like "it"( One long term trend is still bullish because of the half year ending 2018, but fading). Time for a rematch?
So things looking bullish trendwise, tentatively. As in like blowing embers of lit straw kinder to build a camp fire.
I/IKrapp @ " I would post it soon...... the longer you leave it the funnier it will be."
Yes, of course in the interests of transparency, as soon as I'm back home.
Think you may have missed the emphasis on the plural when I posted:
" I have worked on some provisional possible floor SP's and ...."
'Some' (and SP's not SP) and the fact that I mentioned 'provisional' meaning they might require more work to narrow down, before publishing.
Two were just pence apart but ££'s below, and were fall back positions after my first attempt was unsatisfactory, however that first attempt derived from the depths of the 2009 crash to the recent high the other year (2016) threw up something in the 1800p's (or was it 1900p's ?) but I dismissed it out of hand, and realised soon after posting on here, that the reason for dismissing it was an error not of my making but a supplied data error, and actually reinstates the original figure.
Couldn't recreate anything on my phone here tonight, so when I get back home, will check with my desktop.
I know what you're thinking - that's posting after the event with hindsight. It runs that risk, but will provide acess to creating a facsimile of that result.
IKrapp @ " You seem to have gone all quiet."
I refer the right honorable lady to my opening statement to this forum on Sunday last of:
" Out of time and booked up solid all next week, but will try to find time somewhere to ..."
So a further post on Monday from me, my last free day - and by Wednesday you're already wondering why I'm quiet? Really?
Far from home and tired. So briefly:
Breathtaking performance today (Tuesday). Closed with a powerful highly bullish pattern. Bodes well.
1). Thought the SP would be slow out of a very severe oversold condition. I was wrong. It's no longer in oversold condition. It rose out if it in one day flat (today) - very fast!
The Bull is out the gate, running and snorting - get behind the barriers for safety.
2) I thought 205p might be a mean reversion comfort zone. Maybe, but won't be surprised to see it find further comfort circa 200-teens. And that's where that old gap-down lies. So get to 213-ish and it's a slam dunk to 219-ish to close that gap, so 220p is certainly on the cards now.
3) New target 220? Then recalibrate and once there, see what's what. But first destroy 205p.
4) I thought 200 would slow down any attempt to climb back. I was wrong. Did it in one leap in one day.
5) 200 is a pussy; could prove a potential weakness in the future so ..... stay away from it.
6) The new black is190 -195. Turns out it never was 200.
Ever noticed that when a share is in trouble that the self-appointed herd keepers go out of their way to claim special privileges for their shareholding that other companies on the stock market are denied?
Most other companies have amortisation and depreciation costs as part of their free cash flow calculation - BUT ARE STILL JUDGED ON THE DIVIDEND COVER. Not the herd keepers on here. Oh no. They demand that you look over here or over look over there instead, because the view is better. Total delusional response.
Why do you mostly never hear this delusional sh!t on other shares? Maybe because those companies practise better financial housekeeping? And still go on to deliver a decent dividend cover despite they too having amortisation and depreciation costs that could make it look even better.
All companies on the London stock exchange, calculate their free cash flow along the lines of operating cash flow minus capital expenditures that also includes depreciation and amortisation. All of them have some depreciation and some amortisation costs. But some on IMB would have you believe because THEY own shares in this company, it should be judged differently and allowed special privileges that all other companies are not allowed to enjoy.
They're all judged on dividend cover no matter what. Only in this parallel universe that exists here, do they some cry boo hoo that's not fair you can't measure IMB on dividend cover, it has to be different to everybody else. Well you do measure IMB the same as everyone else - and it has not covered dividends in 4 out of the last 6 years. Suck it up!
At least forecast divi cover is adequate for the next forward 2 years. You won't hear a peep out of them then on divi cover.
" Your statement "profit is profit" could not be more wrong, Profit can be manipulated. Cash cannot. "Profit is vanity , cash is king" as they say."
And 2018 cash (part 2) was actually down on the preceeding 5 years average, by being just above half that average. So your pithy, well known saying, doesn't change anything, does it?
But instead, rather confirms my point that 2018 cash being "up" on 2017 was no cause for celebration, as we were being encouraged to do so.
(Part 4) concludes with -
Now if I stopped there I'd be aping Tom by not telling both sides of an issue, because 2 of those 6 years met their dividend obligations fully from net profit and not only that but left some net profit available for other uses.
So the net profit "surplus" deducted from the full 6 years 'overspend', now results in adding to debt, not that £1,342m, but £910m. Still extremely undesirable - which is all the negative dividend cover has been indicating for some years, debt has increased because more is being paid out than is being earned in profit! It's sheer Charles Dickens:
"Annual income twenty pounds, annual expenditure nineteen pounds, nineteen shillings and six pence, result happiness.
Annual income twenty pounds, annual expenditure twenty pounds nought and six pence, result misery."
Ergo - It needs dealing with!
However, that's all historic water under the bridge.
Looking forward, the good news is (and it is good news) the next 2 years forecasts show dividends are well covered - if budgets and targets are met.
Investors will just have to live with that £0.9billion added stress on the debt metric. Could easily have been dealt with at the time, but I guess management were terrified of offending the income funds invested in IMB and political ramifications of damage to IMB's reputation as a pension fund's favourite investment vehicle.
Free cash flow is not a secret profit channel panacea that's somehow not declared in the accounts. It's more an efficiency measure that can also be used to advantage in times of duress. The profit is the profit and that's it. No secret pots of gold hidden under the free cash flow floorboards.
Do not let anyone dismiss the importance and danger of successive years of dividend cover falling under 1.0 - IT IS IMPORTANT! And to persuade otherwise is both disingenuous and unwise.
Having said all that - there are loads of quality metrics in the balance sheet that designate IMB as a true value prospect - when value shares come back into fashion. But as well as numerous market beating metrics in IMB there are some that are not so hot, and need attention. So let's turn attention to the truth of the dividends and dividend cover, in essence, my sole issue with your post. What follows are the past half dozen years of net profit and how many of those years failed to provide sufficient net profit to fully pay for dividends.
Now exemplary free cash flow can come to the rescue if dividend payments exceed the net profit if - IF - it's only a temporary situation, or just the odd year - but continue doing that, for many a year and eventually you will come to the end of the road. Curtains. Insolvency. Dress it up all you want but spending more than you earn will end in insolvency, that cash flow just won't be able to solve. It's 100% delusional to attempt to discredit negative dividend cover as not the full picture and that's where my issue with your opinions lie.
But instead of opinions flying about all over the place, what is the actual position in £'s and pence? Divi cover for 4 of the last 6 years was under 1.0 suggesting that debt has indirectly increased because of paying out more than the net profit produced ie.,
2013 = 0.8 bad
2014 = 1.16 ok
2015 = 1.25 ok
2016 = 0.42 bad
2017 = 0.86 bad
2018 = 0.76 bad
(PS. Net Debt for 2018 stands historically at the highest ever, for the past 6 years @ £12,807m but it's only marginally higher, not breathtakingly higher).
2013 Net profit = £905m
2013 Dividends paid out = £1,065m . . . = £160m adversely impacting debt.
2014 Net profit = £1,422m
2014 Dividends paid out = £1,149m . . . = £273m surplus net profit available :)
2015 Net profit = £1,691m
2015 Dividends paid out = £1,259m . . . = £432m surplus net profit available :)
2016 Net profit = £631m
2016 Dividends paid out = £1,386m . . . = £755m adversely impacting debt
2017 Net profit = £1,409m
2017 Dividends paid out = £1,528m . . . = £119m adversely impacting debt
2018 Net profit = £1,368m
2018 Dividends paid out = £1,676m . . . = £308m adversely impacting debt
So, the 4 years with negative divi cover under 1.0 produced added stress on debt, by subverting free cash flow to the tune of £1,342m (£1.342 BILLION in increased debt to finance dividends!)
Now if I stopped there I'd be aping Tom in not telling both sides of an issue, because 2 of those 6 years met their dividend obligations fully from net profit and not only that but left some net profit available for other uses.
So the net profit "surplus" deducted from the full 6 years 'overspend', now results in adding to debt, not that £1,342m, but £910m. Still extremely undesirable - which is
Sheer bull. Divi cover is derived from comparing to net profit earnings and is separate from comparing it to operational earnings - and you know it is. It's a rather lame way to discredit (negative) divi cover. Dividends are not a direct expense and therefore can only be paid from net profit, as all other expenses (mostly) are paid from operational profit, and what is left is net profit.
And Geez! whilst on operational profit - I EXPECT the electricity and utility bills to be paid from operational profit.
I EXPECT staff wages to be paid from operational profits. What's so damn good about that? I'd worry if nothing at all was paid from operational profit - that's why it's called operational profit - it's for paying off and attending to things accrued directly in operations of the business. It's not "good" it's nothing to marvel at. It's not a case of: "Oh look what's been achieved" as you opine. It's absolute basic operation - not "extra" to expectations as you appear to be implying.
If it were a family, and the housewife was asking the husband where the money went, it's like the husband replying - but look what's been achieved, you're not looking on the bright side - First I've paid off the monthly mortgage, etc.,
Only for the wife to interrupt: well I don't expect you to spend the mortgage money on the racetrack, of course it gets paid from your salary, I expect that, what I want to know is, where's the rest of it?
Also, you mention a £200m cash surplus, whilst quietly ignoring in the same sentence that an unexpected windfall of £200m occurred from selling a subsidiary, and with an evangelical expression of delight conclude:
" This meant the company finished the year with around £200m more cash than the previous year"
Well duh, yeah - you just had £200m handed to you for the subsidiary sale. What you gonna sell off next year? The office desks and chairs?
And even that increase in cash, is pure smoke and mirrors illusion. Sure 2018 finished with £775m - which was up on 2017's cash of £624m. So cash in 2018 was up on 2017 cash, yes? But behind 2017 is a different story and that's like having a salary cut by 50% in 2017 and getting a 10% pay rise in 2018 and then running home declaring that things are on the up.
- What I mean by that is, cash for the past 5 or 6 years or so has been running as follows:
2013 = £1,793m
2014 = £1,413m
2015 = £2,042m
2016 = £1,274m
2017 = £624m
So running average is circa £1430m. But according to your assertion of look what's been achieved from operations for 2018 - cash is UP £200m over last year you say, and is -
2018 = £775m
So in retrospect, what you trying to pull here Tom? 2018 cash is little more than half the longer term average of the 5 years prior to 2018. Hardly "up" by comparison . So you pull the wool over others eyes on how great cash is because it's up on 2017? But it's all relative, isn't?
tomglan - (1st part of a 3 or 4 part-post or so, to complete my rant :)
Right grabbing the chance whilst I have it, to post. I'll have barely an hour free apart from 11pm to midnight for 8 days solid commencing tomorrow, so you may well have the last word on this subject matter Tom, as I'll be busy elsewhere.
That's because, I'm reluctant to reply several weeks later, however much I differ in opinion on an old subject, as it clogs up the board, when the forum might have moved on to other issues.
PS. Please try not to take personal offence as my posting style can become quite colourful in language at times. I'm not aiming at you, just your bias (we all have biases; no doubt you'll point mine out :)
Having said that I feel I must respond to that summing up sentence in your last post of:
" I stand by my last point that the dividend cover of 0.76 reported earnings does not paint a true picture as it suggests the company is borrowing to pay dividends, which is not the case"
Not only incorrect - I say, Poppycock and more fool you, and I intend demonstrating why you are so mistaken, by showing the cumulative damage a series of years in negative divi cover can cause.
First off, two things (before commencing) in which you said initially:
" ... all figures were pulled from the 2018 annual report so there shouldn't be anything contentious there..."
- Of course, it's not the figures per se, that I take issue with (hee! although read on) it's the conclusions and potential for misdirection in your opinions that you draw from them, that I find erroneous.
And the second is your: "... in 2018 the company generated approx. £3100m from operations..."
Well, right there I'm afraid we're not even on the same page from the off.
There is only one figure for Operating Profit , and I'm not seeing £3,100m as you offer - but instead £2,407m. Is it me or is it you?
Even the LSE fundamentals link above is showing the same as I'm suggesting of £2,407m. Perhaps that was a typo on your part, and if not, go ahead and blind me with science and a bit of music hall stand-up comedy routine along the lines of:
You have two and I have three, but you have more than me because"........etc., etc.,
(Maybe you're swallowing company 'buff' of add-on's that shows things in a better light - add this bit and re-add this debateable bit - to change the actuality to come up with that £3,100m?)
What you are suggesting in the examples that followed your opening is along the lines of: just look what's been achieved from operations of reducing this and increasing that - therefore you shouldn't "panic" over (negative) divi cover as you're not getting the full picture.
Bull! Sheer bull. Divi cover is derived from comparing to net profit earnings and is separate from comparing it to operational earnings - and you know it is. That's a rather lame way to discredit (negative) divi cover.
Out of time and booked up solid all next week, but will try to find time somewhere to detail the misconceptions in your last post below. Had it concluded without the final sentence tacked on, I might have let it pass as is. In fact your first post on divis to Bismarck and the one below up till the final sentence almost had me posting positive salutations to you, until I read that last sentence as it indicates to me, IMO, that you are suffering quite badly from buyers bias.
(Seriously; you're trying to tie a link with operating profit and its associated operational expenses as a consideration against net profit and divis? Unbelievable!)
If time I will detail my calcs and findings, but really it's not why I logged on here last night. I've held IMB for 3 years so am deeply under water, and have never posted on here in that time.
I have worked on some provisional possible floor SP's and just wanted to put out a post to see if others had any views (wether calculated or not) on where they feel the floor might lie, and after depart on my merry way.
One thing I feel is likely - I don't think anyone will like my calculations I've come up with as to where the floor might lie.
Faultsman@ " Velo, Im not suspicious, but if you havent sold your shares due to the fear factor then you are holding, and hoping,..... etc., etc., "
Hi Faultsman, don't have any issues with your personal opinions in your post, but your timeline with BT and myself is out of kilter, you appear determined to tell me an alternative version of reality as to where, and where not, I am invested, with your assertive: "then you are holding etc.," I am not.
Currently I am NOT invested in BT but have set a computerised limit order to buy @ 190.9 whether it goes lower or not, and was active from Sat. So it's likely I will gain an initial tranche in BT this coming week (might have to buy manually if price rises away, but I'm not desperate to buy) just want to make a few bob out of all the focus I've put into monitoring BT lately.
FYI Here's my history so you can recalibrate your timelines:
I first bought into BT back in Sept-ish 2017, for approx average of 280's. Thought about exiting at circa 316p as was becoming more aware of the longer down trend in force, but held on for the divi, and expected it to rise back above 300. Got involved elsewhere and took my eye off the ball and before I knew it, the SP was not recovering post XD period. I quickly sold for as best I could to limit the damage. Those with long memories will recall me posting of a £25 loss LOL! In other words, I had pocketed the divi and was lucky to get out virtually even-stevens. The price then continued to sink.
Later on October-ish I took out a spread bet, long position. It did rise successfully, and I sold for approx £1k profit only, but it could have been so much more had I been less risk averse and used a more substantial stake per point bet.
I returned summer/ to late last year and took out another long spread bet. Didn't like how the SP turned after building a nice profit and sold before risking it turning into a loss. This time closed with, as luck would have it, barely above zero. So out of 3 excursions into BT I had made only a net £1k profit.
I was supposed to remain permanently away from this forum, but had time to read as often as not, but not contribute, I logged on recently as I had previously told Aus I was interested in looking again when the new CEO did his first kitchen sinking and pick up BT on the cheap as a result. There was no kitchen sinking and this drop in price has been quite alarming. So unless I'm making a huge error I'm thinking anywhere between £2 and £1 has got to be a floor somewhere, until value shares come back into vogue, so downside I think might be limited.
So, don't hold a position in BT as you claim I do, but most probably will from Monday.
Still can't tell if you're pulling my leg or are genuinely suspicious (A good thing where shares are involved).
Busy as hell so ask Aus who queried and I answered on that subject last Oct-ish. Otherwise will attempt to get some time to fully answer. (Hoping you're pulling my leg and save my typing).
"I've seen it quoted at 0.74 on some sites and 1.45 on this site. "
And my - ** The actual divi cover for the full year ended Sept 30th 2018 is = 0.76 **
PS. It occurs to me that the 0.74 you're seeing elsewhere may be their figure for the last full year and if so is pretty close to my 0.76 (So your 0.74 site would appear to be fairly accurate).
I did state below that initially I thought it was their attempt at the TTM calculation but it's rare for free sites to offer that info, only historic info.
So it's probable that both sites are attempts at revealing last year's divi cover, and not TTM valuations. I prefer TTM and forward projections, so may have over-complicated my reply to you.
"the decline is still very much on."
That's the fear, and must be given due consideration - but if correct, it must also be borne in mind that the market doesn't travel in ruler-straight lines, but zigs and zags along its chosen route - so even if the trend continues down, there will be peaks and troughs along that road. I will try and be nimble footed if the trend down continues unabated. I'm no buy & hold advocate. I will get out if necessary. (That's after I get back in on Monday :)
[PS. This will be my 4th excusion into BT).
" Please can someone explain the correct div cover for imb. I've seen it quoted at 0.74 on some sites and 1.45 on this site. "
Bismarck, Might be able to shed some light on the disparity -
First off the divi cover of 0.74 is a little worse than I have, but it's close enough for me to confirm that the 0.74 you're seeing is based on the TTM - the Trailing 12 Month Data. That means it incorporates the latest interim results into the company/market forecasts to arrive at a 'forward' cover likely to be achieved by the time the full year results are announced. I would suggest that wherever you obtained the 0.74 figure from, is more current than LSE (Go back and check; does it make any mention of TTM?)
For the record I have the forward divi cover slightly better at 0.84
Whatever - both are well under 1.0 and represent an undesirable state of affairs.
As for this site's (LSE) 1.45 cover for last year. I have no idea how they arrived at that nonsense!
The actual divi cover for the full year ended Sept 30th 2018 is = 0.76
Again undesirable as it's under 1.0 and means that money was either borrowed to pay shareholders or sidetracked from free cash flow. Not good and can't carry on like that. Some good news though -
For the year ending Sept 2019 I have the divi cover @ 1.34 (But recall that TTM of 0.84 so straight away we have a disparity between what the company has led the market to expect and that of building in the last interims of March just gone, into the calcs which as stated above is suggesting 0.84 So that's a big wait and see in Sept or rather a couple of months later when they release the results.
And for next year ending Sept 2020 I have the divi cover @ 1.27
Everything for 2020 gets readjusted once those Sept 2019 figures are known.
So in summary:
Last full results divi cover = 0.76
TTM expectations for Sept 2019 = 0.84
( Company/brokers estimate is far better @ = 1.34 (We'll see which comes closest soon enough)