Incitec Pivot investing now for future dividends

Lee Mickelburough Head of Perennial Growth Management raises his concerns about the lack of corporate investment in growth initiatives. “For too long companies have been taking the easy option, paring back the growth plans of their businesses and returning cash to shareholders… Many investors are currently focused on ASX Top 20 stocks, which comprise 65% of the market. The yield on that basket of stocks is a bit over 4% however the average payout ratio is 85%.” Mickelburough says investors should be more focused on companies investing to grow their earnings, which will ultimately see more sustainable dividends. "For example, Incitec Pivot, the Australian multinational corporation that manufactures industrial chemicals, fertiliser and explosives, currently trades on a 3% yield. However the company’s payout ratio is a conservative 52%. Management have also been investing to grow the business… The returns from this investment are expected to drive dividend growth. We estimate the dividend will grow strongly over the next three years and this dividend growth will result in a yield above 4.5%” Read the full article here: (VIEW LINK)

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