The IOOF Holdings Limited (ASX: IFL) share price finished Tuesday up 16.4% with investors excited by its half year result.
IOOF Holdings is a diversified financials business that offers a variety of services to clients including financial advice, platform management & administration, investment management and trustee services. IOOF has been operating since 1846 and is now one of the largest financial services industry businesses.
What IOOF Holdings Reported
IOOF reported that its statutory net profit after tax (NPAT) increased by 200% to $135.4 million. The diversified financials business also reported that underlying net profit from continuing operations increased by 6% to $100.1 million. According to Bell Potter, analysts were expecting net profit of $77 million.
Part of the driver of the result was a 10% increase of total funds under management, administration and advice (FUMA) to $137.8 million in the six months to 31 December 2018. IOOF also experienced net platform inflows of $688 million, which was up 12%.
The profitability of IOOF improved with its cost to income ratio reaching 52.4%, an improvement of 2%.
During the half IOOF also completed the acquisition of the Australia and New Zealand Banking Group (ASX: ANZ) wealth management business.
IOOF Dividend
IOOF has declared a dividend of 25.5 cents per share, which represents a cut of 5.6% compared to last year’s interim dividend.
The company said it is reverting to its dividend payout ratio policy of 60% to 90% of profit. IOOF said a 27 cent per share dividend in the previous two periods was paid to maintain yield to pre-existing shareholders who might otherwise have had their returns diluted following a capital raise.
IOOF Management Comments
IOOF Acting CEO Renato Mota said: “We have delivered a solid financial result in a difficult first half-year, and we’re well aware of the challenge ahead to restore trust. The Royal Commission has identified some serious failings within our industry and given us cause for reflection and a catalyst for change.”
Is IOOF A Buy?
If IOOF starts paying a 25.5 cents dividend every six months, it has a fully franked dividend yield of just over 8.2%. This seems very high and attractive if it can be maintained for the long term.
But, I think a business needs to demonstrate it can slowly grow profits if it has a big dividend yield, otherwise a dividend cut could occur. That’s why I’d rather start with a lower yield that’s growing with shares like the ones in the FREE report below.
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