I don't think you should think of the payout ratios as being set mechanistically by the company with a specific cash balance in mind; rather, they are outworkings of what was happening during those times, namely:
The period between 2009 and 2013 was a period of a pronounced slowdown in the residential construction cycle, following the preceding boom years between 2002 and 2008, when REH's earnings almost tripled.
REH's earnings growth compared with the dividend payout ratio going back to 2002 is as follows:
EPS Growth and Payout Ratios
2003: Growth = 10% / POR = 45%
2004: G = 32% / POR = 45%
2005: G = 23% / POR = 50%
2006: G = 15% / POR = 50%
2007: G = 19% / POR = 50%
2008: G = 10% / POR = 50%
2009: G = -12% [Global Financial Crisis ] / POR = 51%
2010: G = 15% / POR = 51%
2011: G = 4% / POR = 51% (Housing construction slowdown gathers pace]
2012: G = -3% / POR = 53%
2013: G = -4% / POR = 56%
2014: G = 18% / POR = 49% (Residential construction cycle recovery commences)
2015: G = 21% / POR = 48%
2016: G = 21% / POR = 48%
2017: G = 11% / POR = 47%
But between 2010 and 2013, during the housing construction cycle downturn, REH's earnings remained largely flat (in fact, EPS in FY2010 was 115c and in FY2013 it was 111c, so there was a slight retreat).
So the rising payout ratio over this period merely reflects the static DPS compared to the slight reduction in EPS. Hence the slight up-tick in the payout ratio.
But the POR wasn't actively designed to go up; that it did was a function of the board being happy to hold the dividend during cyclical slowdown.
And then, since 2013 - when the current cycle upswing commenced - EPS growth has compounded at a rapid clip of 17.5%.
And I suspect that the board, being rightfully prudent, has not wanted to lock in dividend expectations at levels that are overly elevated, especially as we all know that this is a cyclical industry.
In other words, what you are really seeing is an element of "dividend smoothing" which results in a small amount of ebbing and fro-ing of the payout ratio over time. But I wouldn't read too much into that; it's simply the nature of things.
I also wouldn't read too much into what they might do with the emerging net cash holdings that they will increasingly hold (I expect they will have net cash approaching $100m at the end of the current financial year).
Because that's what they like to do; they like to maintain maximum financial flexibility so that - during the inevitable tough times in the industry - they are in optimal position to capitalise on opportunities that present themselves without having to concern themselves too much with how they are going to fund those opportunities.
One of the many things that must make Reece a nice place to work if you are a financial manager is that you never have to take calls from, or have meetings with, commercial lenders of any kind.
Never get into a position where you need to depend, for your financial well being, on the kindness of strangers, a mentor once told me.
Reece is one of a select few companies that follow that same dictum.
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