Commonwealth Brewery’s (CB) 100 percent dividend policy may be an incentive to many investors to participate in its initial public offering (IPO), but it has come under scrutiny in regards to whether or not such a policy is sustainable.
At the heart of the issue is the question of whether the dividend policy of a 100 percent payout of net income would allow for necessary capital expenditure – spending on physical assets like equipment to accommodate future growth and production capacity at the brewery.
Heineken recently became the 100 percent owners of the brewery, 25 percent of which is now being offered to the Bahamian public through the IPO.
A key consideration for many investors would be the capital necessary to address long-term physical upgrades to the plant. Some investors question the long term sustainability of the dividend policy. After all, at some point even depreciation must come to an end as assets are written down as far as they are allowed to be.
Sceptics of the policy are also discouraged by the fact that, recently, CB may have had to take retained earnings to make up dividend payments, according to one prominent financial expert.
