Monday, 25 March 2013

Cash-rich Dutch Lady can sustain high dividends

Cash-rich Dutch Lady can sustain high dividends

Written by Insider Asia
Wednesday, 20 March 2013

Stocks that pay steady dividends are always attractive to investors. For
those who are more risk averse, high dividend payout levels and yields
often provide good support to share prices amid short-term market
volatility. For others, consistent dividends are a dependable source of

In the long run, companies that maintain high payouts are usually those
operating in mature industries with lower capital expansion requirements.
While expected to grow at a modest pace, they are also more resilient
during economic downturns.

Generous dividends that are supported by strong earnings growth over
the past few years are among the key driving forces behind the
handsome share price gains for DUTCH LADY MILK INDUSTRIES BHD
[] (RM47.28).

The company’s net profit more than doubled over the past three years, to
RM123.4 million in 2012 from RM60.4 million in 2009. The outsized
earnings growth relative to sales — which increased by some 28% over
the same period — was attributed to a combination of factors, including
focusing on key growth products, having a more favourable sales mix
(exiting from the low margin creamer business), and enjoying economies of
scale as well as cost management.

The company’s range of powdered and liquid milk as well as yoghurt
products is estimated to account for some 20% of the local dairy market.
With the stronger cash flow from operations and minimal need for capital
expenditure, Dutch Lady’s cash has been piling up fast. Net cash grew
to RM204.8 million at the end of last year from RM41.7 million at end-

This, in turn, has allowed the company to raise its dividend payments.
Net dividends jumped to RM2.60 per share last year from 73.8 sen
per share for 2009.

Its strong balance sheet implies sustainability of dividends at a high level.
Capital expenditure (capex) is expected to rise in the
current year, by a reported RM15 million to expand capacity for the
company’s liquid milk production, .....

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