We got some big news out of Metcash Limited (ASX: MTS) this morning. Metcash is the company behind the IGA-branded chain of grocery stores in Australia. As well as the Mitre 10 hardware store chain. Metcash shares are currently up 1.09% to $3.70 a share, outperforming the broader S&P/ASX 200 Index (ASX: XJO), which is essentially flat today, up a measly 0.02%.
So what did Metcash tell its investors this morning that has clearly elicited a positive response from the markets today?
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Met-cashing in
Well, as we covered earlier, Metcash today released its full-year results for the 12 months to 30 April. The company delivered an objectively pleasing set of numbers, with revenues climbing 9.9% to $14.3 billion and earnings before interest and tax (EBIT) rising 19.9% to $401.4 million. Underlying profits after tax were also up 27.1% to $252.7 million.
But let's talk about dividends. Metcash has been a steady dividend-paying share for a few years now, forking out bi-annual payments every year since 2017 (including through 2020). Its past two payments came in at 8 cents and 6.5 cents per share respectively. These dividends give Metcash shares a current trailing yield of 3.92% on current pricing, or 5.6% grossed-up with the company's full franking credits.
But that number represents the past, not the future. So what is the company telling us about its dividends going forward?
What about the Metcash dividend?
Well, it's another pleasing number for shareholders. This morning, Metcash also told investors that its next final dividend will come in at a fully-franked 9.5 cents per share – a 38% increase on the last interim payment. This coincides with a shift in the company's dividend policy. It is now striving to pay out 70% of its underlying net profits after tax as dividends, up from the previous target of 60%. So once this new dividend hits shareholders' bank accounts on 11 August, what will Metcash's trailing dividend yield look like?
Well, taking the new payment of 9.5 cents per share together with the most recent divined of 8 cents, and we get a figure of 17.5 cents per share. That would give Metcash shares a trailing dividend yield of 4.73% (or 6.76% grossed-up) on the current share price. If we take the newly announced dividend and annualised it, we would get to a potential forward yield of 5.14% (7.34% grossed-up).
Just to compare these yields (and potential yields), let's take a look at what Metcash's rivals are currently offering in terms of dividends. On current pricing, Woolworths Group Ltd (ASX: WOW) has a trailing dividend yield of 2.68%, or 3.83% grossed-up. Coles Group Ltd (ASX: COL) has 3.57% (or 5.1% grossed-up) on the table. Wesfarmers Ltd (ASX: WES) is putting up 2.82% (or 4.03% grossed-up).
