Is the Diversified United Investment Limited (ASX: DUI) share price a buy for dividends after reporting its HY20 result?
What is Diversified United Investment?
It’s a listed investment company (LIC) which has been operating since 1991 and it invests in Australian shares and international shares.
It has maintained or grown its dividend every year since FY93, which is a very reliable record.
What are some of its top holdings?
At the end of January 2020 its three largest individual investments were CSL Limited (ASX: CSL) being 14.7% of the portfolio, Transurban Group (ASX: TCL) being 7.2% of the portfolio and Commonwealth Bank of Australia (ASX: CBA) being 7.1% of the portfolio. I think these are some of the better blue chips within the ASX20.
However, some of its top 25 holdings are different and more growth focused than what you’d see in a normal ASX 200 (ASX: XJO) index. For example, some of its other larger holdings include Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Idp Education Ltd (ASX: IEL), Ramsay Health Care Limited (ASX: RHC) and Sonic Healthcare Limited (ASX: SHL).
Interestingly, the LIC’s top 25 holdings also include six globally-focused ETFs. Those six ETFs make up 13.7% of the LIC’s total investments. Some of those ETFs include a tech ETF, a healthcare ETF, an emerging market ETF, a global share market ETF and a US share market ETF.
DUI’s HY20 profit numbers
The LIC reported that its profit after tax and before net realised and unrealised gains and losses was $17.4 million, up 2.2% compared to last year. Revenue was up 1.6% to $20.9 million. Excluding special dividends, revenue fell 0.9% and profit after tax fell 0.8%.
Earnings per share based on profit after tax was 8.2 cents, up from 8.1 cents.
The results of LICs can seem confusing because they deliver investment returns, a return of -5% can seem bad in an absolute dollar sense compared to last year’s result, whilst generating a return of 10% in one year and 20% in another year shows profit doubling in dollar terms. LIC profits aren’t consistent like normal operating businesses.
The net tangible asset (NTA) backing per share based on the market valuation of investments was $5.01 at 31 December 2019, compared to $4.10 at the end of the prior corresponding period, an increase of 22.2%.
For the half-year performance, the NTA (plus dividend) return was 5.8% while the S&P/ASX 200 Accumulation Index rose 3.1%, meaning the LIC outperformed the index.
As I mentioned earlier, DUI has grown or maintained its dividend every year since FY93. It has increased its annual dividend each year over the past few years, though in this half-year result the LIC decided to maintain the dividend at 7 cents per share.
That means the current grossed-up dividend yield is 4.25%, though I suspect DUI may increase its FY20 final dividend to add to its growth streak.
Is DUI a buy at this share price?
I like DUI more than most of the other “old” LICs on the ASX because it is invested a bit more for growth and it indirectly owns international shares, though its yield is a bit lower than other LICs – however it’s delivering long-term income growth for shareholders.
It’s currently trading at a 1.5% discount to the NTA disclosed at 31 January 2020, so it’s actually decent value, most of the other “old” LICs are trading at small premiums to their net assets now, so DUI would probably be a better value choice.
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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 Transurban Group and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited and Sonic Healthcare 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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