Can the Graincorp dividend really triple in 2022?

One broker thinks so.

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Key points

  • The Graincorp share price hit an all-time record high on Friday 
  • The agribusiness excited the market with an FY22 earnings guidance upgrade on 8 April 
  • One broker reckons Graincorp could pay triple its FY21 dividend in FY22 

Graincorp Ltd (ASX: GNC) sure is harvesting some big ASX investor support of late. Its shares hit an all-time record price of $10.17 today before retracing to finish the session at $10.10, up 1.1%.

Why is the Graincorp share price reaching new heights?

Earlier this month, the agribusiness excited the market with an FY22 earnings guidance upgrade and trading update on 8 April.

Here’s what managing director and CEO Robert Spurway told the market:

… We are seeing high global demand for Australian grain and oilseeds and strong supply chain margins for grain exports. This has been driven by two consecutive bumper crops in east coast Australia (ECA), coupled with supply shortages in the northern hemisphere.

The conflict in Ukraine and resulting trade disruptions in the Black Sea region have created uncertainty in global grain markets, with buyers looking for alternate sources of supply. This has further increased both the demand for Australian grain and oilseeds and export supply chain margins.

Spurway added that the current La Nina weather cycle is benefitting the company, too.

Recent weather patterns and continued La Nina conditions have provided excellent planting conditions for the 2022 winter crop to date, building confidence in grain supplies from ECA and further supporting export sales and supply chain margins.

So what will all that do for earnings?

In short, really good things. Graincorp is now expecting underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $590 million to $670 million — up from previous guidance of $480 million to $540 million. They reckon that will convert to net profit after tax (NPAT) of $310 million to $370 million — up from $235 million to $280 million.

ASX investors loved that and sent the Graincorp share price hurtling about 9% higher on the day.

Then came the broker upgrade. As my Fool colleague Brooke reported last week, Wilsons has increased its earnings expectations. According to the Australian Financial Review, the broker said:

While global demand is unlikely to diminish quickly, new crop grain price spreads will depend on the size of the Australian winter crop and exporters’ ability to secure supply chain access.

The outcome of this dynamic will likely have a significant impact on [financial year 2023] earnings. While we continue to assume volumes and margins normalise, GrainCorp’s balance sheet will benefit from the significant cash flow, with core net cash forecast at $333 million in [financial year 2023].

Could the Graincorp dividend really triple?

Wilsons anticipates $1.52 in earnings per share (EPS) and 62 cents per share in dividends.

Hold up, what was that?

Yes, indeed. The broker reckons all this additional income could add up to triple the annual dividend that was paid out in 2021. That was 18 cents, by the way. You do the math — 62 cents is actually more than triple!

Graincorp pays its dividends in July and December. According to the company’s website, Graincorp will release its HY22 earnings results on 11 May.

Wilsons has a $7.80 price target on Graincorp. Based on that price, 62 cents in dividends would represent a 7.95% dividend yield.

Based on today’s closing price of $10.10, the yield is lower at 6.2%. But wait, there’s more. Graincorp dividends usually have 100% franking on top. That equates to a grossed-up total yield of 8.85%.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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