Company declared a final dividend of 8.25 cents, up 3.1% from the 8.0 cents paid last year
MELBOURNE: Djerriwarrh Investments Limited (ASX: DJW) announced an increased final dividend Tuesday, underscoring its strategy of delivering enhanced fully franked income despite portfolio underperformance against the surging S&P/ASX 200 Index during the 2025 financial year.
The listed investment company (LIC) declared a final dividend of 8.25 cents per share, fully franked, up 3.1% from the 8.0 cents paid last year. This brings total dividends for the year ending June 30, 2025, to 15.5 cents per share, compared to 15.25 cents in 2024. The dividend will be paid on August 26 to shareholders on the register as of August 8.
Crucially, Djerriwarrh emphasized its dividend yield advantage. Grossed up for franking credits and based on its net asset backing, the yield reached 6.5% – 2.3 percentage points higher than the yield available from the S&P/ASX 200 Index including franking. The board attributed this “enhanced yield” to its focus on higher-dividend stocks and active options writing.
“While capital growth proved challenging in a strongly rising market, our core objective of delivering superior, sustainable, fully franked income was achieved,” the company stated.
Financial Performance and Portfolio Challenges
Djerriwarrh reported a net operating result – its preferred measure of core income excluding open option positions – of $40.8 million, slightly up from $40.3 million in 2024. Net profit attributable to members was $39.2 million, a marginal 0.6% increase.
However, portfolio performance lagged the broader market. Djerriwarrh’s total portfolio return, including the benefit of franking credits, was 7.8% for the year. This significantly trailed the S&P/ASX 200 Accumulation Index return of 15.1% on the same basis.
Management pinpointed two primary reasons for the underperformance:
- Underweight in Major Banks: A strategic underweight position, particularly in the Commonwealth Bank of Australia (CBA), hurt returns as bank stocks surged to “historically high valuations.” Numerous call options were exercised on bank holdings, and Djerriwarrh chose not to reinvest at elevated prices.
- Defensive Cash Holding: Due to perceived high valuations across the market, Djerriwarrh maintained a net cash position for much of the year, which detracted from returns during the market rally. The company ended the year with $43 million in net cash.
Specific stock detractors included ARB Corporation, Woolworths Group, Macquarie Technology Group, Woodside Energy Group, CSL, and IDP Education. Positives came from Telstra Group, Coles Group, Newmont, Transurban Group, Goodman Group, Port of Tauranga, and the absence of Fortescue.
Portfolio Reshaping and Key Transactions
Significant portfolio adjustments occurred during the year, driven by option exercises and active repositioning:
- Exited CBA: The bank’s strong share price performance ($188) led to heavy call option exercises. Djerriwarrh sold its remaining small holding, exiting CBA completely due to valuation concerns, citing metrics like price-to-book and dividend yield falling below the broader market.
- Sold Disappointments: Fully exited positions in Mineral Resources, Ramsay Health Care, and FINEOS due to weak performance and unconvincing investment cases.
- Major Purchases: Proceeds were reinvested heavily into Rio Tinto ($30.1m cost) and BHP ($19.1m cost), attracted by their “undemanding valuations,” strong balance sheets, low-cost production, and fully franked yields above the market. Also added significantly to National Australia Bank, Westpac Banking Corporation, Macquarie Group, and ANZ Group (a new position after many years).
- Added to Existing Holdings: Increased stakes in long-term holdings ARB Corporation and CSL for their long-term growth and modest but growing dividends.
- New Addition: Initiated a position in Ampol (formerly Caltex), Australia’s leading vertically integrated energy company, anticipating a recovery in refining profitability and attractive dividends.
Option writing remained central to the income strategy, generating $16.7 million (up 1% year-on-year). Call option coverage averaged 40% of the portfolio.
Outlook: Cautious Amid High Valuations
Djerriwarrh struck a cautious tone for the year ahead, noting the market’s third consecutive year of double-digit returns despite geopolitical risks and current valuations appearing “expensive” relative to long-term averages.
“With the broader sharemarket forecast to deliver a dividend yield of just 3.4% – the lowest in 10 years – our focus on enhanced, fully franked income remains compelling,” Managing Director Mark Freeman noted.
The company enters the new financial year with a net cash position and relatively high call option coverage (32%) against holdings in major banks, consumer discretionary stocks, and defensive sectors like real estate and infrastructure. Increased exposure to major miners is expected to provide solid franked dividend income, offsetting reduced bank income due to lower holdings post-option exercises.
Djerriwarrh reaffirmed its long-term strategy: “We continue to believe Djerriwarrh, with its diversified portfolio of quality companies, is well positioned to meet its enhanced yield objective as well as delivering capital growth over the long term.”