BKI Investment FY20 report – what you need to know

BKI Investment Ltd (ASX: BKI), the ASX Listed investment company (LIC), reported its result for the 2020 financial year this week.

BKI Investment Co is a LIC that was formed in 2003 to manage the investment portfolio of Brickworks Limited (ASX: BKW).

BKI Investments 2020 report

BKI’s management team 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 canceling 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, NAB, Macquarie and Transurban. On top of that, some ASX blue chips didn’t pay a dividend at all, such as ANZ, Westpac and Sydney Airport.

The drop in investment revenue flowed through to the profit result, with ordinary net operating profit after tax dropped 15% to $41.6 million. Earnings per share (EPS) fell 16% to 5.67 cents.

Including special investment income from Telstra and TPG, BKI’s 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.

For 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, Ampol, ANZ, Challenger and Cimic.

BKI Dividend

Due to the ongoing economic impact 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.

My takeaway

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 Group. 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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At the time of writing, Jaz holds no financial interest in any of the companies mentioned.

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