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The JSE money pot

Johannesburg - With South Africa beginning to wind down for the December festive season, the appetite for new listings such as Clover and Platfields, which list on the 14th of the month, is surprising but perhaps indicative of why it makes sense to keep the JSE in your portfolio.
 
The monopolistic characteristics of exchange operator JSE Ltd [JSE:JSE] have been well covered in the last few months. However, there is another factor catching the eye of analysts: the growing cash pile and so-far stingy dividend policy.
 
If you buy the JSE at R80, you get a dividend yield of 2.4%. This is probably not going to get investors too excited, especially when the stock is trading on a price to earnings multiple north of 17 times.
 
However, scratch a little deeper and you will find a business which is sitting on R900m in cash, generating in excess of R350m in operating cash flow each year.

The JSE has a stated dividend policy of a payout ratio range of between 1.5x and 2.5x, but its actual payout has ranged between 2.2x and 2.3x since it listed in 2006.
 
"Prudence" will invariably be the watchword from management at the JSE, which will point out that the financial crisis is still fresh in many investors' minds and structural issues in the US and Europe remain a concern.
 
This argument will be closely followed by the one that the JSE needs consistent investment in world class technology, to ensure that it remains competitive with international peers eagerly looking for their gateway into Africa.
 
Both of these are valid concerns. However, it should be remembered that on top of the R900m, the JSE also sits with a further R118m in the Investor Protection funds and that on the technology front, it has already invested significantly in upgrades in the past 18 months.
 
The real kicker though that might light a fire under institutional investors to agitate for a more generous dividend is a new share incentive scheme for management.

According to analysts, over the next four years more than R140m will go out of the JSE coffers to buy back shares which will ultimately be awarded to senior executives as part of the scheme.
 
With the JSE Limited having doubled in the last 12 months, investors have been happy to keep quiet about the stingy dividend - but don't be surprised to hear some unhappy voices in the New Year.

 - Fin24
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