Highcroft Investments – good income flow over a decade

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Yesterday’s newsletter explained that Highcroft’s (LSE:HCFT) net current asset value is 25% above its current market price. This was one factor prompting me to buy its shares at £8.75 (market capitalisation £45m).   Today I look at another enticing feature of the company: it’s solid earnings and dividends flow to shareholders over the past decade. This history and the firm’s quality property assets encourages me to think that there is a reasonably high probability that good returns will be made by shareholders in the future.

Key numbers on earnings, dividends and net assets

£m   2020   2019   2018   2017   2016
Gross rental income 6.08 5.84 5.04 4.77 3.91
Less property operating expense -0.62 -0.18 -0.18 -0.26 -0.20
Net rental income 5.46 5.66 4.86 4.51 3.71
Net gain on disposals 0.97 0.13
Net valuation gain -4.65 -2.89 0.48 3.29 0.97
Investment income 0.06 -0.06 0.23 0.63
Less administrative expenses -1.07 -0.83 -0.74 -0.66 -0.65
Net operating profit -0.26 2.00 5.51 7.36 4.80
Net finance expense -0.90 -0.85 -0.70 -0.65 -0.50
Tax refunds 0 0.01 0.12 0.12 0.04
Profit after tax -1.15 1.15 4.93 6.84 4.34
EPS statutory -22.2p 22.3p 95.3p 132.3p 84p
EPS with valuation gains/losses removed 67.7p 78.5p 87.3p 64.8p 55.7p
Dividend 57p 48p 52.5p 46.25p 41p
Net asset value per share £11.04 £11.75 £12.07 £11.61 £10.71
£m   2015   2014   2013   2012   2011
Gross rental income 3.44 3.08 2.73 2.35 2.13
Less property operating expense -0.33 -0.16 -0.15 -0.18 -0.30
Net rental income 3.11 2.92 2.58 2.17 1.83
Net gain on disposals 0.42 0.94 0.42 1.55 0.28
Net valuation gain 4.77 3.64 1.24 -0.59 -0.27
Investment income -0.23 0.06 1.00 0.75 0.07
Less administrative expenses -0.53 -0.43 -0.35 -0.31 -0.34
Net operating profit 7.52 7.12 4.90 3.57 1.57
Net finance expense -0.36 -0.17 -0.05 -0.01 -0.02
Tax credit 0.07 0.10 0.01 0.02 0.14
Profit after tax 7.24 7.06 4.86 3.59 1.72
EPS statutory 140p 136.5p 94p 69.6p 33.4p
EPS with valuation gains/losses removed 55.6p 72.7p 56.5p 72p 40.1p
Dividend 38.8p 36p 33.75p 31.8p 30p
Net asset value per share £10.26 £9.23 £8.21 £7.59 £7.20

Dividends per share over the ten years total £4.15 – a large payout on a share trading at £8.75.  And yet in the same period the directors have grown net rental income by an average of 12.9% per year (from £1.83m to £5.46m) and net asset value by 4.9% per year (from £7.20 to £11.04).

So, it seems that a good dividend yield (currently 6.5%) can be accompanied by a growth in regular profits from income producing properties and growth in the asset base.

The earnings per share measure excluding gains/losses in property values rose from 40.1p to 67.7p, an average

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