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).
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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