Brambles shares hit 52 week high; retain 27 cent dividend

Pooling solutions company Brambles (ASX: BXB), which held its 2013 Annual General Meeting this week, has informed shareholders that it expects to distribute a scheme booklet for the demerger of the document storage business Recall in the coming days and hold a meeting of shareholders to approve the demerger on the 3rd of December.

With regards to the demerger, Chairman Mr Graham Kraehe announced in his address to shareholders that “the Board intends not to reduce the Brambles dividend to reflect the demerger and to keep the annual dividend at least at 27 cents per share.”

This is a significant development for income seeking investors given the expectations that the Recall business will also pay a dividend. With Brambles currently trading on a slim 2.8% dividend yield, shareholders who continue to hold both their Brambles and their Recall shares stand to benefit from higher overall dividend payments.

The Chairman also noted the value accretive nature of many demergers. Citing 20 demergers that have occurred since 2000 of companies with market capitalisations of at least $100 million, Mr Kraehe stated that “the average share-price performance in the first year of the demerged entity has been 17 per cent and of the parent entity has been 5 per cent. That compared with an average performance on the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) of less than 1 per cent in the same period.”

Indeed there are a number of examples of shareholder value creation through demerger. One of the most recent examples being the demerger of the old News Corp business into Twenty-First Century Fox (ASX: FOX) and News Corp (ASX: NWS). Since the demerger in June, the share prices of these 2 firms are up 17% and 25% respectively.

Foolish takeaway

The AGM helped Brambles share price reach a new 52-week high of $9.64 on Tuesday. While current shareholders are likely to be pleased with the performance of the company, investors evaluating the potential merits of an investment at current prices are unlikely to see much upside given the outlook from management “that the global economic environment is unlikely to improve significantly in the short to medium term.”

Brambles strong share price run has shrunk its dividend yield below what many income-seeking investors desire. Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

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Motley Fool contributor Tim McArthur owns shares in Twenty-First Century Fox.

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