Question 1: According to CommSec, BHP will pay dividends this year totalling $4.55. That’s a yield of over 10%, with franking on top. How sustainable is that?
Answer: Yes, on a share price of $40.85, that’s a yield of 11.1%. With franking, it grosses up to almost 16%.
Clearly, no one expects this to be maintained. It is a price “taker” and has no control over the prices it receives for its major commodities (iron ore, copper, coking coal and thermal coal). In FY22, it achieved margins of over 60% on these commodities.
Looking ahead, most analysts expect commodity prices to soften, but not collapse. The strength of the Chinese economy will be critical.
In regard to the dividend, the major brokers (according to FNArena) currently forecast BHP to pay a dividend (on present FX values) of 411c for FY23 and 295c for FY24. This puts BHP on a prospective yield of 10.1% for FY23 and 7.2% for FY24.
I should point out that I have never met an analyst who consistently gets the forecasting of commodity prices right – so in many ways, your “guess” is as good as “theirs”. That said, I think BHP is a really well-run company with a fabulous portfolio of assets – and remains a core stock in my portfolio. I view the dividend as a “bonus”.
Question 2: BlueScope (BSL) announced a final dividend of 25c, unfranked. It also said that it expects to frank its dividends going forward. Why is the current dividend unfranked?
Answer: Companies can only frank dividends if they pay sufficient Australian company tax. When they pay $1 of Australian company tax, their franking credit balance increases by $1 and reduces by $1 for every $1 of franking credits they pass on to shareholders.
BlueScope earns revenue from two main activities – steelmaking in Australia and steelmaking in the US through North Star. On their American profits, they don’t pay Australian company tax. On their Australian profits, they had carried forward tax losses.
These tax losses have now been used up, so BlueScope will start to pay Australian company tax on its Australian profits and will be able to frank its dividends. We don’t know yet whether these will be fully franked or partly franked.
Question 3: How can I see what stocks are shorted? Is there a public list available?
Answer: Each Saturday, in the Switzer Report, we publish a list of the most shorted stocks. It also includes data on how those short positions have moved over the week (i.e. positions being opened, positions being closed).
The data we use is “public” and is published by ASIC. You can pull down the data here. [1]
Currently, the most shorted stocks (based on the percentage of shares short sold) are Flight Centre, Betmakers, Block, Nanosonics and Lake Resources.
Question 4: What is your opinion on LiveHire (LVH)? Is it time to bail or hold?
Answer: LiveHire (LVH) is raising $10 million through a fully underwritten 1:7 entitlement offer at 24c per share. The funds are being used for expansion into the USA and Europe, plus for working capital. Given the participation of the Board and Management, I guess you could view that as a vote of confidence in the company.
Only 1 major broker covers the stock and that is Morgans. They have a target of 50c (this was determined before the capital raising).
The company is burning over $2 million cash each quarter – so this capital raising might be the last ‘roll of the dice’. If you believe in the company and the opportunity, I would stick with it. Otherwise, look for an exit path.
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