Tower Investments CEO Stubbs not surprised by Mighty River Power move to increase dividend ratio

Tower Investments CEO Stubbs not surprised by Mighty River Power move to increase dividend ratio

By Alex Tarrant

Tower Investments CEO Sam Stubbs says he is not surprised by Mighty River Power's move to increase its dividend ratio, saying it shows power companies in New Zealand are moving to a more mature phase in their business cycles.

Last week, Mighty River said it would increase the ratio from 75% of net profit after tax to 90-110%, raising the possibility of it using retained earnings, or even borrowings, to pay out dividends to shareholders. 

The change comes at the expense of cashflow being spent on new domestic projects following Mighty River's NZ$1 billion, five year investment into geothermal projects.

The company is currently 100% government owned, but is the first energy SOE on the block in the government's partial privatisation programme under which 49% could be sold to private interests.

Stubbs told interest.co.nz the move to increase the dividend ratio at the expense of new domestic projects was not necessarily negative in terms of the company's future outlook. It showed the company was shifting from a growth phase to a more 'capital mature' phase.

"It doesn't entirely surprise me that power companies in New Zealand are starting to think about a more mature phase in their business cycle," Stubbs told interest.co.nz.

He said a lot more generation capacity had come on-line recently, meaning the supply and demand sides of the electricity market had become more balanced.

The move comes after electricity demand has fallen in three of the last four years. See Gareth Vaughan's story; Have we reached peak power?

'No more negotiations'

Meanwhile, in related news, Prime Minister John Key looks to have ruled out further negotiation on the water rights issue set to come before Wellington's High Court this week.

The Maori Council brought the case in an effort to halt the government's plans to sell up to 49% of Mighty River, Meridian, Genesis and Solid Energy, arguing it would affect the ability of Maori to register water rights on assets and water bodies used by the power generators.

The government's argument is that the ownership structure of the power companies does not affect the ability of Maori to register a right or interest in water.

"I'm not interested in negotiating a solution," Key told TVONE's Breakfast programme on Monday morning when asked about comments from the Maori Council.

The partial sale of Mighty River has already been twice delayed, from September 2012 to December, and then to March-June 2013, firstly due to a Waitangi Tribunal hearing on the pending sales, and then as the government discussed particular share plans with Iwi.

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What really is the difference between a larger payout and keeping extra in the kitty for new investment?
I will tell anyone that it is a big con to make the mum and dad investors think they are better off.
Humbug