Z Energy anticipates paying bigger dividends to shareholders under a new policy, which will see it slow down an accelerated pace of debt repayments at the end of the financial year and fund new capital purchases by selling other assets.
The Wellington-based company had been targeting 10 per cent annual growth in dividends per share as it repaid $705 million of bank debt taken on to fund the acquisition of the Chevron New Zealand assets, tweaking an earlier policy of paying dividends of 80 per cent of replacement cost net profit. In a briefing to investors in Auckland, Z today said it will pay between 80 per cent and 100 per cent of free cash flow in the 2019-to-2021 financial years. On the mid-range of potential outcomes, that would see dividends of 40-to-42 cents per share at 80 per cent of free cash flow and up to 55-to-55 cents at 100 per cent.
"The rationale for this policy is simply 'better with you than us'," chief executive Mike Bennetts said in a statement. "This policy rewards investors for their support and sees Z as one of the leading yield stocks across the NZX without the complexity and unpredictability of share buy backs or special dividends."
Z's projected 32 cents per share dividend payment for the 2018 financial year represents a dividend yield of 4.2 per cent at the current share price of $7.62, and would rise to as much as 8 per cent under the new dividend policy, it said.
The company signalled it was reviewing the dividend policy at the start of the year after debt repayments were tracking three or four quarters ahead of schedule.