ARB's special dividend
Recommendation
ARB Corporation has declared a fully franked special dividend of $1.00 per share to be paid on 5 December (ex date 17 Nov). The distributor of four wheel drive accessories will distribute $72.5m to shareholders and a significant portion of the company's accumulated franking credits. This is a savvy move, as the Federal Government has proposed reducing the corporate tax rate from 30% to 28.5% from July 2015, and the lower franking rebate would apply to any retained earnings paid out after 1 Jul 15 regardless of when the profits were earned.
Shareholders can elect to receive all or part of the dividend as shares rather than cash as the company has temporarily recommenced the Dividend Reinvestment Plan (DRP) and the Bonus Share Plan, but it only applies to the special dividend. The applicable share price will be the lower of $11.35 (ex the special dividend); or a 5% discount to ARB's average share price during the five trading days after and including 17 Nov 14.
Chairman and founder Roger Brown said, 'Please note that any previous participation that shareholders may have had in the Plans is no longer operative. Accordingly, if shareholders wish to participate in the DRP and/or BSP with respect to this Special Dividend, shareholders must complete the Election Form (which will be enclosed with the Information Booklet) according to the instructions on the form and return it to the share registry … by 5pm on 21 November 2014.'
However, with the share price up slightly since ARB Corporation: Result 2014 from 25 Aug 14 (Hold – $12.97) and just 6% below our Sell price, we'd prefer to take the cash and invest it in cheaper opportunities on our Buy list. We still love the company despite the headwinds it faces as the resources boom deflates, but due to its high valuation we're sticking with HOLD.