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SkyCity dividend pledge may chew through almost all second half profit as earnings fall

SkyCity Entertainment Group's [NZX: SKC] pledge to maintain dividends at higher levels even as it spends on major developments may see the listed casino company pay out almost all of its second half profit to investors.

SkyCity, which has four casinos in New Zealand and two in Australia, increased its dividend policy last year to annual payments of not less than 20 cents a share and not less than 80 percent of normalised profit. Previously, dividends were cut to 60-70 percent of profits in 2009 in an attempt to reduce debt following the appointment of chief executive Nigel Morrison in 2008.

Based on current forecasts for weak profitability this financial year, the company is likely to pay out 97 percent of its second half earnings as dividends to shareholders, Arie Dekker, a research analyst at Craigs Investment Partners, said in a note to clients. Dekker expects second half profit will fall to $60 million from $66.4 million in the first half reflecting higher depreciation costs following increased capital spending. In the first half, SkyCity paid 10 cents a share in dividends, representing 87 percent of earnings.

"The shift in dividend policy to a minimum of 20 cents per share was put in place to provide investors with some certainty ahead of the major development expenditure," Dekker said. "As it turns out, while that expenditure is yet to commence in full; the very strong NZ$/A$ and ongoing mixed performance across the group means that the payout ratio in FY14 will be above 90 percent."

Dekker expects $200 million of capital spending in 2014, slowing to $150 million in 2015 and ramping up again to $235 million in 2016.

Auckland-based SkyCity wasn't immediately able to say if the company had previously paid a higher ratio of dividends.


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Comments and questions

The overseas investors will be driving this decision, based on the inflated nature of the NZ dollar.

The money men know full well this National Government have been running the countries economy into the ground, and trying to hide it with smoke and mirrors.

You can not keep borrowing to bridge the gap in the economy created by the removal of dividends by overseas investors.

This country is owned too much by overseas interests, and its time the NZ government either:

1. Created Barriers to this.
2. Stop subsidying wages, through working for families. It only increases profits to overseas interests.
3. Regulate monopoly industries.
4. Encourage export driven companies to establish themselves.

All of the above would be good; which would reduce the trickle up effect.