JB HiFi (JBH) is a favorite stock for short sellers. The stock has 19.16% short interest and appears to permanently sit at the top of the list of the most shorted stocks on the ASX. Its share price is down 20% year over year but a ten year time horizon looks much better. Here is the chart:
JB HiFi has struggled to compete with against cheaper offshore competitors and a strong Australian dollar. Nevertheless its fundamentals look strong. A few paragraphs below you’ll see a table of its nine-year dividend history since their maiden dividend in 2004.
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For eight consecutive years HB HiFi increased its dividend before cutting it back in 2012 in the face of declining margins. The payout ratios have gradually increased, as is typical of a growing company.
The issue with JBH, however, is declining margins and slowing growth. The company has introduced “JB HiFi Home” with appliances for sale. This venture may prove successful, as it did for US home improvement giant Home Depot.
Considering recent challenges, the cash flow situation for the last three years has been respectable.
Here is the table:
| JB HiFi | 2010 | 2011 | 2012 |
| Net Operating Cash Flows | $152.10m | $109.94m | $215.01m |
| Net Investing Cash Flows | -$56m | -$44m | -$45m |
| Net Financing Cash Flows | -$80m | -$91m | -$158m |
JBH Dividend History 2004-2012
| JB HiFi | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
|
DPS |
$0.072 | $0.072 | $0.076 | $0.11 | $0.26 | $0.44 | $0.66 | $0.77 | $0.65 |
| DY | 3.1% | 2.0% | 1.5% | 1.0% | 2.5% | 2.9% | 3.5% | 4.5% | 7.3% |
| PR | 45% | 36% | 31% | 29% | 43% | 50% | 61% | 62% | 61% |
* DPS=Dividend Per Share, DY=Dividend Yield, PR=Price Ratio.
The final two stocks in the table are telecoms, Telstra (TLS) and smaller rival M2 Telecommunications (MTU).
Telstra is certainly the market darling, up 42% year over year – while a few major analysts are taking note of MTU. In the last half of 2012 both Macquarie and Citi initiated coverage on MTU with a BUY and an OVERWEIGHT rating. Comparing TLS and MTU over ten years gives you an idea why:
M2 began trading in 2004 and the share price is up 400%; Telstra’s share price is flat. Both have turned in outstanding dividends for shareholders and the numbers indicate both are stable, although Telstra’s dividend cover in 2012 was a bit low at 1.12. Here is the performance table for MTU since it began paying dividends in 2005:
| M2 Communications | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
|
Dividends per Share |
$0.022 | $0.025 | $0.029 | $0.048 | $0.053 | $0.096 | $0.154 | $0.18 |
| Dividend Yield | 6.7% | 8.9% | 4.0% | 8.4% | 7.7% | 5.9% | 4.9% | 5.4% |
| Payout Ratio | 70% | 71% | 75% | 74% | 64% | 71% | 72% | 71% |
The company has increased dividends every year with consistently respectable payout ratios. Their cash flow position reflects recent acquisitions, notably the purchase of Primus Communications in mid-2012. Here is the table:
| M2 Telecommunications | 2010 | 2011 | 2012 |
| Net Operating Cash Flows | $13.31m | $39.74m | $41.56m |
| Net Investing Cash Flows | -$17m | -$44m | -$201m |
| Net Financing Cash Flows | $12m | $2m | $172m |
MTU has the potential for both growth and continued solid dividend performance. Its 2 year earnings growth forecast is 26.6% while dividend growth forecast is 15.5% over the same period. The outlook is not so favorable for the venerable Telstra, with only a 1.8% growth forecast for dividends and a 1.8% drop in earnings. However, the company’s ten year track record on dividends is solid. Here is the table:
| Telstra | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 |
|
Dividends per Share |
$0.27 | $0.26 | $0.40 | $0.34 | $0.28 | $0.28 | $0.28 | $0.28 | $0.28 | $0.28 |
| Dividend Yield | 6.1% | 5.2% | 7.9% | 9.2% | 6.1% | 6.6% | 8.3% | 8.6% | 9.7% | 7.6% |
| Payout Ratio | 77% | 80% | 115% | 132% | 107% | 94% | 85% | 89% | 102% | 89% |
Telstra managed to maintain a dividend of $0.28 per share for six years running and boasts a respectable cash flow position for the last three years. Here is the table:
| Telstra | 2010 | 2011 | 2012 |
| Net Operating Cash Flows | $9,691m | $8,018m | $9,276m |
| Net Investing Cash Flows | -$3,466m | -$2,541m | -$4,079m |
| Net Financing Cash Flows | -$5,481m | -$4,874m | -$3,906m |
Indeed, these stocks demonstrate that income investments on the ASX aren’t limited to the trusts and the big banks.
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