NZX amending dividend policy

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NZX Ltd, one of the best performing stocks this year, is planning a share split and will base its dividend policy on operating earnings rather than net profit.

The NZX share price surged after the announcement, and by early afternoon was up 58c to $8.48.

The company is having a 3:1 share split, to happen after the market closes on December 21, taking the number of its shares to 123 million.

The aim of the share split was to bring the share price into line with the average NZX50 share price, and was in response to well reasoned calls from retail shareholders for such a move, NZX said.

It is also changing its dividend policy from the current approach of paying out 60 percent of net profit after tax (NPAT), to a cents per share approach based on operating earnings.

Operating earnings remove changes in value of financial instruments, and net off expenses relating to interest, tax and depreciation, while recognising the net cash flow benefits from NZX investments.

For the 2009 financial year, NZX is declaring a final dividend on the post share split increased capital, of 6.5c per share, fully imputed.

The company said that represented a payout of about 60 percent of expected operating earnings.

"Based on management's confidence regarding the earnings growth outlook for the business, NZX intends to increase the annual dividend by a minimum of 1c per share annually, for the next five years," NZX said.

When NZX had listed as a business in 2003, it had a poor earnings history and unproven prospects, and accordingly initiated a dividend policy which retained 100 percent of cash flows, with no dividends declared.

By 2005, after a period of growth in earnings and retention of capital, the company had accumulated enough cash balances, retained earnings and imputation credits to institute the dividend policy that paid out 60 percent of NPAT.

During 2009, NZX has significantly reshaped its business through a series of acquisitions and dispositions.

The sale of the TZ1 registry business for Markit shares, for example, had materially increased the NZX balance sheet. It would affect NZX's NPAT as the valuation of Markit shares changed.

The potential size of changes, their unpredictable direction, and the consequent impact on NZX's reported NPAT, meant the previous dividend policy was no longer appropriate, given the non-cash financial asset changes in valuation affecting the company's after tax profit, NZX said.

The changed profile of the business -- with a strong cashflow base and a strong growth profile -- meant operating earnings was a more appropriate benchmark for recurring or underlying earnings than NPAT from which to determine dividend policy.

The company remained growth-focused and had a strategy it was confident would lead to continued strong revenue and earnings growth, NZX said.

-NZPA