Spark dangles special dividend sweetener for another year, shares rise

Spark New Zealand [NZX: SPK] shares rose 2.3 percent after the country's biggest telecommunications company dangled the prospect of a cash sweetener to investors for a second year in a row.

The Auckland-based company's board delivered on an intention to pay special dividends this year, and wants to keep paying them in 2017. The board declared interim dividends totalling 12.5 cents per share today, including a 1.5 cents special dividend, and affirmed its forecast for annual ordinary dividends of 22 cents and special dividends of 3 cents.

Spark plans to repeat that 3 cents per share special dividend in 2017, provided there aren't any major changes to the business, which chief financial officer Jolie Hudson said was a way to reset capital management.

"They're trading higher today on the back of that additional special divvie," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "That dividend return is what's underpinning the share price."

Central banks around the world have been running exceptionally low interest rates since the global financial crisis in 2008, and that's prompted investors to seek out returns from income-paying stocks, something New Zealand's share market is known for, while also pushing up share prices.

Spark's shares advanced 7.5 cents to $3.28, a dividend yield of 7.6 percent at the forecast annual return of 25 cents per share. That compares to a 12-month term deposit offering about 3.5 percent, according to interest.co.nz, and 2.8 percent on New Zealand's five-year swap rate, an instrument used as a benchmark for corporate borrowing.

Rickey Ward, head of NZ equities at JBWere in Auckland, said companies have increased the ratio of earnings they pay to shareholders and looked to deliver returns to investors through special dividends and share buybacks.

"You really saw it gather momentum towards the latter part of last year," Ward said. "Often when you have companies, whether it's Spark or the electricity generators, they're pretty close to a 100 percent pay-out ratio, so any additional payment on a special div is not tax exempted."

Ward doesn't expect that demand for income to cease, as it's the "vital attraction for our market," though the scope for hiking dividend payments has decreased as firms increased the ratio of profits being paid out.

(BusinessDesk)