Aussie vs NZ tech stocks: Which are best for dividends?

Clare Capital partner Mark Clare was surprised at the total of dividends paid out by Australasian techs

Mark Clare on Australasian tech stocks: who's paying out the most in dividends?

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New research from Clare Capital focuses on dividends paid by listed technology companies in Australasia – and it shows the Aussies are far ahead.

Only one New Zealand company (Trade Me) features in the top 10 dividend payers in the last financial year (see table below).

And overall, there are only two Kiwi entries in the Top 20 (the other is Gentrack; Vista, which started paying dividends this financial year, should squeak into the next list).

Tech stocks were traditionally looked upon as growth rather than value stocks. That began to change as more mature techs like Apple and Microsoft started to pay dividends as they strengthened again after the dotcom crash.

Mr Clare says he was surprised at the total of dividends paid out by Australasian techs: close to $1 billion.

He says it’s also notable that 85% of dividends were paid by just 10 companies (see table below).

And that all of the top five payers are in some form of listing business — Computershare with shares, and Seek, REA Group (a real estate site) Carsales.com and Trade Me with classifieds.

They’re also all relatively mature companies, naturally lending themselves to shelling out dividends to keep investors loyal.


Source: Clare Capital

But with other well-established companies, like 11-year-old Xero, the tradition of techs forgoing profit – let alone dividends – in their pursuit of growth is alive and well.

Mr Clare says investors should be comfortable with that.  

“Losses are fine as long as value is being created,” he says.

To quantify that, his company works by what it calls the 40% rule: that is, losses can be stomached as long as you have fast-growing revenue.

"The 40% rule is based on combining profitability and growth into a single number," Mr Clare says.

"The aim should be a number over 40%. Basically, losses are okay – as long as you are growing. It’s calculated from the last financial year's revenue growth plus the last financial year's ebitda margin."  

He cites examples including Trade Me on 74% [9% revenue growth + 65% ebitda margin], Xero 34% [43% revenue growth + -9% ebitda margin], and Pushpay 158% [224% revenue growth + -67% ebitda margin].

"It isn’t a perfect number – but it is an interesting rule."

In New Zealand, Xero is by far the most cited example of a company pushing for growth over profit. "And many people worry will ever produce profit?" Mr Clare says. "We would say absolutely, and Xero’s doing absolutely the right thing by investing in building the customer base with a view to making greater profits further down the track.”

Companies like MYOB have shown businesses with similar economics to Xero can and do make sizable profits when they choose to focus on profitability and not on growth, he says.

MYOB has purposefully confined itself to Australasia while Xero is pushing for growth internationally, he notes.


Source: Clare Capital

RELATED VIDEO: NBR View's Simon Dallow talks with ASX's Max Cunningham on the trend to Kiwis listing across the Tasman (July 4).

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7 Comments & Questions

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Will be interesting to revisit when all these companies (XRO, PPH, SKO, ERD) in a few years time to see how much profit they are making and what size dividends they are contributing as cashburn turns to cashflow positivity.

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At what point does 'using the internet' stop being tech? Most of the companies mentioned are just companies that use tech, rather than tech companies.

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Which country leads in 75-100% destruction of investor capital?

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Why limit the comparison to Australia when 99 percent of the worlds technology stocks are listed in the us.easier to just buy a global tech etf or better still a properly diversified etf

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Nice to see some dividends flowing back to investors and the big percentages shown in the list look attractive till you dig a bit deeper.

To buy the Top 10 of the list (CPU, SEK, REA etc) on the day of their last dividend would set you back approx $135 and if you collected the dividends paid in the prior year you would have collected $3.87 for a yield of 2.87%. Kiwibank Term Deposit looks quite attractive.

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Good point. CPU is on a dividend yield of some 2.32% according to the ASX. And Kiwis can't access the franking credits.

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I would flip it around to take a VC approach to listed companies when so many list when they are premature so I would look at what cash the companies have on their books, what is their cash burn in terms of cash flow, what is the trend in revenue growth and change in cash flow and how long till the companies have to return to the market to raise more capital. Lastly I would look at the valuation of the last capital round and where the company trades now as this shows the delta in change in market cap/valuation. Pacific Edge would be a good start, Powerhouse perhaps a second. From an investor analysis position, I would still use VC analytics for all of these companies as they will tell you if the companies are sustainable, whether there is enough revenue traction to get them to cash flow positive, is the market too small so they just won't get there and/or are the fixed costs too high to be covered by increasing revenues. That's more interesting to me than which country's listed "tech" stocks pay dividends or not as each company is still very unique at this stage.

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