We profile ECS and Multi-Chem, two IT products distributors recently about their weak recent results.
Multi-Chem yields 8.6% with no debts while ECS holdings yield 4.7% with debts.
Today, took a look at a WIFI networking manufacturer Powermatics Data Systems that provide a 6.6% prevailing yield for the past 4 years.
From the FY2012 annual report Powermatics look great:
- Market Cap: 26 mil
- Cash: 20 mil
- No debts
- Free Hold industrial property leased out last valued at 18 mil
- 6.6% yield
A look at recent FY2013 annual report showed otherwise:
- Cash fell to 17 mil
- No debts
- Free Hold property still around 18 mil
- FY profit fall from 1.8 mil to 0.6 mil
That looks bad on paper. It confirms a subtle trend that all these distributors are facing headwinds in the industry.
While Multi-Chem did not have a fixed distribution policy, so does Powermatics Data Systems.
However, Powermatic need 1.7 mil to pay their 1 cent dividend, which they been paying since 2008.
Still, this highlights 2 things:
- Having a cash holding of 17 mil should provide ample cushion to pay for many 1.7 mil dividends.
- You probably cannot think that way. A lot would think that with a cash holding like that in good times, it provides much safety. These cash are set aside for working capital and in times like these, they are dug in to finance receivables, inventory and dividends. The cash dropped in this case and under a prolong industry down turn we can very well see this end up as 10 mil.
Bottom line, paying a dividend less than free cash flow or earnings indicates certain conservativeness.
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