The day after Crown Resorts Ltd (ASX: CWN) reported its full-year results, the share price has consolidated yesterday's second best gain in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). After jumping 5.6%, it has again risen today by around 1% at lunchtime. There have been sundry reasons given for this outperformance. However, in my view, the most important reason has been largely overlooked.
The most commonly cited reasons for the share price rally:
Before considering my most important reason for the share price rise, let's first examine other contributing factors including:
1. The Melco Crown Entertainment (MCE) joint venture (of which Crown has a 33.6% interest) strongly contributed to the growth in Crown's profits.
2. Extremely robust free cash flow (FCF).
3. An increased margin from Crown Melbourne, despite ongoing sluggish consumer sentiment.
4. Having a good year in respect of "hits" taken from high rollers.
Potentially the most important reason for the share price rally:
Crown declared a final dividend of 19 cents per share, which brought the full-year dividend payout to 37 cents. While this was in-line with expectations, a recent announcement from (MCE) that they would initiate the payment of dividends has deep significance.
It has led to Crown revising its own dividend policy. Subject to the company's financial circumstances at the time, the new policy is to pay an annual dividend of the higher of 37 cents per share and 65% of normalised net profit – excluding profits from associates, but including dividends received from associates.
Lending further credence to a coming lift in dividends is the (FCF) noted in Point 2 above. However, the only caution is that the (FCF) and (MCE) dividends may not be sufficient to fund a lift in dividends in the very short term.
