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Utilico introduces quarterly dividends to gild gold losses

by Robert St George on Sep 18, 2013 at 13:37

Utilico introduces quarterly dividends to gild gold losses

The £390 million Utilico investment trust has increased the frequency of its dividends, and will now pay them on a quarterly basis.

The move comes after a year that its chairman described as ‘disappointing’.

In the 12 months to 30 June, Utilico posted a loss of 24.5%. This was driven by the weakness of Resolute Mining, an Australian gold company, on which it lost £59.4 million.

Despite this, the fund earned record revenues of £16.2 million from the rest of its portfolio. This enabled it to confirm a full-year dividend of 7.5p, 7.1% higher than 2012’s distribution and equivalent to a 7.7% yield including a special dividend announced earlier in the year.

This left Utilico with a revenue reserve of 10.12p per share. ‘This strong position should enable the directors to declare a rising dividend for the current year,’ assured chairman Roger Urwin.

However, he noted that the fund’s income was likely to fall in 2013 as one of its holdings, transport ticketing specialist Vix, incurred one-off restructuring costs.

‘The board is aware of the increasing emphasis investors are placing on dividend income,’ added Urwin, ‘and intends to commence paying dividends in the current financial year on a quarterly basis.’ Utilico had previously paid them twice a year.

Paul Locke, an analyst at Westhouse Securities, welcomed the move. ‘This is significant and should be supportive of the fund’s rating given the emphasis on income in the trust universe at this stage in the cycle,’ he commented.

Locke also noted that the fund had halved its exposure to gold mining, to 13%, primarily attributable to Resolute’s slump. Utilico sold £10.8 million worth of its stock in the miner through the year, but maintained that its 70% peak-to-trough share price collapse was an ‘unduly pessimistic’ reaction given that Resolute’s cost of production remained at least $300 below the gold price even at the metal’s nadir of $1,200 an ounce.

‘While the company has significantly scaled back its future capital expenditure plans,’ commented Charles Jillings, Utilico’s manager, ‘it has continued to produce excess cash flows and has taken advantage of the bear market in gold-mining company shares - and subsequent lack of investment capital - to make investments in other gold-mining companies and projects.’

He added that he expected the gold price to rally given that it is ‘a repository of wealth in times of uncertainty’.

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