Dividend, page-16

In 2008 WAM Capital was unable to pay its normally expected dividend because of lack of retained earnings & a fall in their asset value because of the slump in share prices as a result of the global financial crash.

Geoff Wilson instituted a special one of share buyback at an inflated price where the investor was able to obtain the benefit of the expected dividend. The price offered was in excess of the share price at the time & investors who were depending on the dividend were able to obtain the equivalent through the buyback.

Geoff Wilson then made representation to have the law changed. He was successful & now companies can pay dividends without having the retained earnings, as long as they remain solvent & it is prudent for them to do so.

The above means that if ALF does not have sufficient retained earnings & wants to keep a stable share price Justin Braitling can retain the 5 cent dividend payment without having the requirement to have sufficient retained earnings.

The next consideration is franking credits. I would imagine it would be prudent to pay the full 5 cent dividend only if franking credits were available.

It should be interesting to note that many of the shares that ALF borrow & then sold are owned overseas & do not receive the franking credits available to Australian owners. This means, for example if ALF owned CBA shares & was short ANZ to an overseas owner, ALF would receive CBA dividends & franking but would only have to reimburse ANZ dividends but not the franking.

Consequently, it is more than likely that ALF will have sufficient franking credits to allow them to pay a fully franked 5 cent dividend.