Note: This quoted post is from 2655 which I have subsequently reassessed and reworked. However, I have kept my original estimates of the potential increase in dividends here as even though I now believe these to be too low, I could be wrong, and it is interesting to look at another point of view.
A company that is to remain a 'going concern' must generally match their 'capital expenditure' to their 'depreciation charges'. This will ensure that as their capital equipment wears out, new equipment is brought into the 'production line' (in the most general sense) to ensure that the company can continue to operate their services indefinitely into the future. However, there are occasions where this 'rule' can be broken. In the case of new and long life assets, there may be several years where depreciation of the equipment, on paper, greatly exceeds the capital expenditure required to maintain it. With the fibre broadband network largely rolled out, and completion scheduled over FY2022, this is the situation that Chorus finds itself in. A future benefit to shareholders is that Chorus have indicated that from FY2022, they will be in a position where they can pay out some of this 'surplus cashflow' to shareholders in the form of increased dividends. But by how much might dividends increase?
Operational Year (F suffix means forecast) |
FY2016 |
FY2017 |
FY2018 |
FY2019 |
FY2020 |
FY2021F |
FY2022F |
FY2023F |
FY2024F |
|
|
Overall Revenue {G} |
$1,008m |
$1,040m |
$990m |
$970m |
$959m |
$857m |
$755m |
$735m |
$715m |
Total Gross Capital Expenditure {H) |
$593m |
$639m |
$810m |
$804m |
$663m |
$690m |
$514.9m |
$448.2m |
$410.9m |
{G}-{H) |
$415m |
$401m |
$180m |
$166m |
$296m |
$167m |
$240.1m |
$286.8m |
$304.1m |
The dividend guidance for FY2021 has already been announced: 25cps is to be expected (PRHY2021 Slide 21), The compares favourably to the two previous dividends of 10cps and 14cps, which sum to 24c, the payout relating to the previous year , FY2020. If a payout of at least 25cps is planned for FY2021, and that still allows Chorus to retain enough cashflow to run the business, then investors might consider that any incremental future cashflow might be available to boost dividends going forwards. If we consider that FY2021 forms a 'base' dividend rate year, and there are 444.401m Chorus shares on issue, then the
incremental dividends over that base year we might expect from Chorus over FY2022, FY2023 and FY2024 are as follows:
FY2022: ($240.1m - $167m) / 444.041m = 16cps
FY2023: ($286.8m - $167m) / 444.041m = 26cps
FY2024: ($304.1m - $167m) / 444.041m = 30cps
I have rounded down those numbers to the nearest cent to take account of the fact that, in practise, the number of shares on issue may have increased as a result of the dividend reinvestment plan.
FY2023 and FY2024 look like they could become comparatively sweet dividend years for Chorus, before a very heavy debt repayment schedule disrupts things.