Listed investment company (LIC) BKI (ASX: BKI) has reported its result for the 2020 financial year. The report included a dividend cut to investors.
What is BKI?
Bki Investment Co Ltd is a listed investment company (LIC) that was formed in 2003 to take over and manage the investment portfolio of Brickworks Limited (ASX: BKW). BKI’s objective is to generate an increasing income stream through a long term investment portfolio that would grow over time. The core portfolio was created around 30 years ago.
BKI’s FY20 result
BKI said that due to the COVID-19 economic crisis, Australia equity investors have recently experienced a significant cut to dividends, with many companies deferring or even cancelling dividend payments altogether. BKI’s income and profits were not immune from the pain.
The LIC reported that ordinary investment revenue was down 13% to $45.4 million. Lower dividends were received from shares like Woodside Petroleum (ASX: WPL), NAB (ASX: NAB), Macquarie (ASX: MQG) and Transurban (ASX: TCL). And some businesses didn’t pay a dividend at all like ANZ (ASX: ANZ), Westpac (ASX: WBC) and Sydney Airport (ASX: SYD).
The drop in investment revenue flowed onto to the profit result. Ordinary net operating profit after tax dropped 15% to $41.6 million. Earnings per share (EPS) fell 16% to 5.67 cents.
The company received $7.2 million in special dividend revenue from names like Telstra (ASX: TLS), TPG (ASX: TPG), Harvey Norman (ASX: HVN) and Orora (ASX: ORA).
Including special investment income, net operating profit after tax was down 35% to $48.6 million. FY19 included a number of special dividends due to the potential removal of franking credits.
BKI said that its management expense ratio was just 0.17%, which is quite low compared to most other externally managed LICs, ETFs and managed funds in Australia.
In terms of total shareholder returns, BKI’s return was a negative 7.1%, compared to minus 7.6% for the S&P/ASX 300 Accumulation Index return. This means BKI outperformed by 0.5%.
BKI revealed that it has completely sold out of some shares including Boral (ASX: BLD), Ampol (ASX: ALD), ANZ, Challenger (ASX: CGF) and Cimic (ASX: CIM).
Dividend
Due to the current economic situation and the number of dividend cuts from investment holdings, BKI declared a final ordinary dividend of 2.32 cents per share, as well as a 1 cent per share special dividend. That brings the total dividend per share for FY20 to 6.945 cents, a cut of 29%. The ordinary dividend per share is down 19% to 5.945 cents per share.
Summary
A dividend cut is obviously disappointing for shareholders, but to pay the dividend would have meant eating into the portfolio. BKI is expecting further dividend cuts and perhaps capital raisings from some shares. I like how BKI’s portfolio has adjusted to shares like Macquarie and APA (ASX: APA). However, ASX blue chips aren’t where I’m looking to invest. But I think BKI could be a good option for continued good dividend income for many years into the future.
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