Satellites operator Inmarsat (ISAT) has finally conceded what the market has long suspected; that its dividend plans are simply too expensive.
It has not cut the dividend entirely but in 2017 full year results to 31 December the company announced a significant re-basing of what investor payout expectations should be. The share price is down more than 8% on the news to 425.5p.
NEW, SKINNIER DIVIDENDS
The second half 2017 payout will be $0.12 per share. Added to the first half $0.2162 (already paid) the total income for the year will be $0.3362. Consensus forecasts had been for $0.42.
But the longer-run effects will be more significant. Inmarsat says future annual dividends will be capped at $0.20 for at least as long as cash flow stays tight and earnings unpredictable.
WHERE DOES THIS LEAVE INCOME YIELD?
Consensus for 2018 dividends had been pitched at $0.51 but shareholders can now kiss that goodbye.
So instead of the 8.7% 2018 implied dividend yield previously anticipated shareholders should now expect something closer to 3.4%.
Shares saw this coming months ago.
SCANT CONSOLATION FROM RESULTS
On the plus side, full year 2017 revenues (excluding Ligado) were in line with expectations and cash conversion was strong. There’s also reasonable growth in airline broadband and some government areas, offsetting declines in maritime.
But profits were down and the fourth quarter performance was very poor. Pre-tax profit fell from $299.2m in 2016 to $229.8m last year. The fourth quarter slump was way worse, more than halving to $45.6m.
Cash flow from its partnership with Ligado in the US remains unpredictable, investment demands will continue to put pressure on funds and the wider satellite markets remain ‘challenging.'
