Special dividends from Macau gaming names could be reduced because free cash flow (FCF) yield from the operators – including capital spending on new properties – is lower than dividend yield for the first time, says a report from Morgan Stanley Research Asia Pacific.
“We think the casinos are likely to cut special dividends amid flattening or even falling EBITDA [earnings before interest, taxation, depreciation and amortisation] and increasing Cotai capex [capital expenditure],” said the report by Praveen K Choudhary and Alex Poon in Hong Kong.
“For the first time, we have seen FCF yield trending lower than dividend yield,” add the authors, identifying a trend that began at the end of the first quarter this year.
Free cash flow yield refers to the amount of free cash flow (generally meaning operating cash flow minus capital spending) per share a company is expected to earn, set against its market price per share. Dividend yield refers to how much a company pays out in dividends each year relative to its share price.
The research team added that the net cash position of the Macau casino industry is falling.
“Net cash of the industry was down by ~40 percent compared to [the] end of 2013. Wynn [Macau Ltd] flipped to a net debt position for the first time since 1H11,” added the Morgan Stanley report.
Wynn Macau was one of the trailblazers for discretionary dividend payments among the Macau names. In November 2011 the firm said it would pay its first special dividend of HKD1.20 (US$0.15) a share.
In January 2012 Sands China Ltd said it would pay its first interim (i.e., non-discretionary) dividend of HKD0.58 per share. In the second quarter 2014 earnings call of Sands China’s parent Las Vegas Sands Corp, chairman Sheldon Adelson said that across the 10 financial quarters to June 30, 2014, the firm had returned the equivalent of US$1.5 billion to those Sands China shareholders that were not also Las Vegas Sands stockholders.
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