Originally Posted by
SARF
They are generating cash for shareholders.
But they’re paying more out in dividends than they’re actually earning. That’s one of my concerns about the way that Stobart Group is being run.
To say that payment of dividends through asset sales is a viable business plan is an oversimplification. Generally, dividends are paid out of earnings. One offs like asset disposals are ideally re-invested in the business; if not, they’re normally returned to shareholders through a one-off special dividend.
Yes, to dispose of an asset for more than you acquired it for is fine. But, unless I’ve totally misunderstood the business, Stobart Group are not a Real Estate company.
My concern is that Stobart’s dividend policy is unsustainable. They’re not making enough money to pay the dividend so they have to either dispose of assets or dip into reserves to maintain those dividends. Sooner or later those reserves will be exhausted. Either Stobart Group need to grow the business sufficiently to cover the dividend through earnings, or eventually they’ll have to bite the bullet and reduce the dividend. Meanwhile, they’re planning to underwrite a new airline operation with uncertain prospects……..
As I’ve said before it’s a high risk strategy.