This ASX dividend share is the latest to raise capital amid COVID-19

ASX dividend star Dicker Data Ltd (ASX: DDR) went into a trading halt this morning as the technology distributor announced a $55 million equity raising.

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Dicker Data Ltd (ASX: DDR) shares went into a trading halt this morning as the technology distributor announced a $55 million equity raising. The raising consists of a $50 million institutional placement and a $5 million share purchase plan. 

What does Dicker Data do? 

Dicker Data is a value-added technology distributor that sells via a base of more than 5,000 resellers. Vendors distributed by Dicker Data include Citrix, Intel, Lenovo, Microsoft, Cisco, and HP. The company is a strong distributor to the mid-market and small and medium businesses, with approximately 80% of revenue coming from these sources. 

Equity raising 

Proceeds from Dicker Data's equity raising will be used to provide balance sheet flexibility and support the company's long-term growth objectives. These include the partial funding of construction of Dicker Data's new distribution centre and continued investment in Dicker Data Financial Services. 

The equity raising also provides the opportunity to broaden and diversify Dicker Data's share register. Free float may increase to above 30%, improving trading liquidity. Chairman David Dicker said, "the equity raising will be used to support Dicker Data's long-term growth objectives, and ensure we remain well positioned as Australia's leading value added technology distributor."

Recent performance

In line with its recent market update, Dicker Data reaffirmed it has not experienced any material adverse change to the overall sales pipeline or earnings as a result of the COVID-19 pandemic. Total monthly revenue in April increased 37.7% over April 2019 to $163.7 million. The company also saw a strong 1Q20 performance with record monthly revenue achieved in March 2020. 

The surge in demand has been driven by significant mobilisation in working from home solutions. This reinforces the role of IT distribution as an essential component of business continuity.

In the March quarter, total revenue increased 19.9% to $463.9 million. Profit before tax increased 36.3% to $18.4 million, up from $13.5 million the previous year. Cost leverage was achieved due to increased sales. Savings in finance costs were also realised as a result of the lower interest rate environment. 

Dividend policy 

Dicker Data's dividend policy is to pay out 100% of after-tax profits. Quarterly interim dividends are paid at an equal rate, with FY20 interim dividends of 7.5 cents per share fully franked. This brings total proposed dividends for FY20 to 35.5 cents per share, an increase of 31.5% from FY19. 

Outlook

Dicker Data is continuing discussion with vendors regarding expansion of its business portfolio. Despite the strong start to 2Q20, Dicker Data says it is too early to determine market conditions for the second half of the year, and has declined to provide guidance in terms of expected growth for the year on an annualised basis. 

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data 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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