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Milton share price falls on FY20 half-year result, is it a buy?

The share price of Milton Corporation Limited (ASX: MLT) is down after the listed investment company (LIC) reported its half-year result to 31 December 2019. Is it a buy?

Milton has been an investment company since 1938 and it became a LIC when it listed on the Sydney Stock Exchange in 1958. It invests its own funds in a diversified portfolio of investments which is internally by its directors and executives.

It invests in a variety of shares on the ASX like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), BHP Group Ltd (ASX: BHP) and CSL Limited (ASX: CSL).

FY20 half-year result

Operating revenue fell 0.3% to $72.3 million and special investment revenue rose by 54.2% to $2.6 million. That special revenue was special dividends from portfolio companies including ASX Ltd (ASX: ASX), Rio Tinto Limited (ASX: RIO) and Telstra Corporation Ltd (ASX: TLS).

In terms of its profit, it was down. Net profit after tax (NPAT) including special investment revenue net of tax dropped 0.6% to $70.2 million and excluding the special investment revenue in fell 1.9% to $67.7 million.

Earnings per share (EPS) including special investment revenue fell 1.6% to 10.49 cents and excluding special investment income EPS dropped 2.9% to 10.11 cents.

It reported that its management expense ratio (MER) was 0.13%, it charges no management or performance fees.

Milton’s total portfolio return for the 6-month period was 2.1%, with the 12 month return to December 2019 with a gain of 16.5%. Total shareholder return for the 12 months was 20.2%.

Some of the biggest sales by Milton during the period were of Bank of Queensland Limited (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN), Westpac and Australia and New Zealand Banking Group (ASX: ANZ). Some of the biggest purchases were of Macquarie Group Ltd (ASX: MQG), Transurban Group (ASX: TCL), Sydney Airport Holdings Pty Ltd (ASX: SYD) and BHP.

Milton dividend

One of the most important things for a LIC is the dividend. Milton declared an unchanged interim dividend at 9 cents per share.

Milton Managing Director

Milton’s Managing Director Mr Brendan O’Dea said: “We are pleased with the results in the first half which were achieved against the backdrop of declining dividends in certain sectors, notably the retail banks. We expect that challenging conditions will continue for dividend growth in the short term and remain cautious about dividend income for the full year.”

Is Milton a buy?

The LIC is expecting to at least maintain its final dividend at 10.4 cents per share. Its pre-tax net tangible assets (NTA) seem to roughly be tracking its share price, which is a fair price. I think Milton’s grossed-up dividend yield of 5.5% looks attractive in this low-interest environment and the dividend is growing, even if it’s at a slow pace.

However, I think there might be some better dividend share options out there for growth.

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Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited, Sydney Airport Holdings Limited, Telstra Limited, Transurban Group, and Washington H. Soul Pattinson and Company Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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