The recent press release of CLI had some investors scratching their heads. I’m here to offer my insight into the matter since I am a holder of CLI. You can find my analysis on Cebu Landmasters on that link. Consider this press release:
In a recent disclosure to the Philippine Stock Exchange, Cebu Landmasters, Inc. (CLI) announced that its Board of Directors approved the issuance of stock dividends amounting to 122 percent of its current outstanding shares. This represents 1,900,000,000 common stocks to be issued from the company’s unrestricted retained earnings as of Sept. 30, 2020.
This development “will enable CLI to position its equity to take in the growth we expect from our various projects in 15 key cities of Visayas and Mindanao,” according to Grant Cheng, chief financial officer of the firm listed in 2017.
Since then, CLI has posted a compounded growth rate of 53.26 percent from 2017 to 2019 in revenues from 2.3 billion to 8.5 billion, and 38 percent in net income to parent from 767 million in 2017 to 2 billion in 2019. The company now has more than 70 projects in various stages of development.
From residential projects focused on the economic and mid-market segments, CLI has also expanded its product lines to include large-scale developments such as the 22-hectare Davao Global Township (DGT) envisioned to be Mindanao’s premier master-planned business district and the 100-hectare Minglanilla reclamation project designed to maximize Cebu’s tremendous growth opportunities from manufacturing and other robustly growing industries.
“This increase in stocks prepares the company for any significant equity raising opportunities in the future and allows us to go to market more readily should there be a need,” observed Cheng. This will also create a greater number of public float shares to allow more investors to participate in CLI’s growth momentum.
The aforementioned stock dividends will be sourced from the increase in authorized capital stock of CLI upon approval of the Securities and Exchange Commission. These will also be submitted for approval in a special stockholders meeting to be called within the first quarter of 2021.
A 2020 market study done by Santos Knight Frank disclosed that CLI remains as the leading developer in the Visayas and Mindanao region, keeping its market position in VisMin for 2 consecutive years.
source: https://edge.pse.com.ph/openDiscViewer.do?edge_no=2d08ba2f8839ac820de8473cebbd6407
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The Stock Dividend
The company would distribute 122% stock dividend to its shareholders. The stock dividend will come from the increase capital stock of the company from 2.5 Billion to 10 Billion shares. 1.9 Billion of which would be subscribed by the company itself, paid for by its retained earnings. In other words, the new shares would be subscribed by CLI itself and distributed to shareholders. This is different to the normal way of dividends where instead of cash, CLI opted to use the cash, subscribe to its new shares and pay it using the (suppose to be) dividend money.
Would there be dilution?
Yes and no. There won’t be any dilution involved as the new shares is paid for by the company and is given to all shareholders in equal percentage. The dilution would come when other outside investors come in. Those extra shares that is sitting now after the increase in capital stock would dilute the shareholders, but it would also mean more optionality for the company should they need more cash in the future. It’s just a balancing act. I think its a good position to be in. But for now, there won’t be any dilution. Dilution may come later in the future when outside investors subscribe to the newly created shares.
When is it better to buy? Before or after the dividend?
Formulating good questions is a practice to better investments. Let’s say you decided to invest in CLI, when is it better to buy the company? Or when is it better to add to your investment? Is it before the dividend gets distributed so you get to double your shares or is it after the dividend announcement when the stock price has adjusted because of the newly created shares?
I will leave that question for you to answer. Leave your answers to the comment section below.