This is the Plato Income Maximiser half-year results webinar. We're gonna cover the six months ended December 2023. I will cover that. My name is Chris Meyer. I'm a company Director of PL8. I'm also a Director of Pinnacle. For many of you probably know, Pinnacle does most of the investor relations for PL8, so it's great to have you on the call. I'll be the host for today. But Don Hamson is our guest and always the main event. A PL8 webinar wouldn't be the same without Don and his insights into what's going on in the world of dividends and Australian shares. So Don, welcome. Don is a PL8 Director and founder of Plato Investment Management, which is the manager of the PL8 portfolio.
So as I said, my name is Chris Meyer. I'll run through the first half of the presentation. The first bit, which is, you know, most would think is pretty boring, but it's necessary, is the disclaimer. We just wanna make sure that you all understand we're not here to provide personal financial advice. We don't know your personal situation, so please, this is general advice, and any stocks that Don may talk about is not a stock tip for you, please. In terms of the agenda, we'll go through some of the highlights of the company. It's somewhat backward-looking, given it was a December half, so, we'll fly through that, and then we'll move on to the market update and take some questions from you at the end.
If you do have questions, usual story, please, type them into the Q&A box at the bottom of your screens, and we'll get... Don and I will get to those, at the end. So in terms of the company, I always like to frame these results, in the context of the company's objectives. You can see that we've even put that as a bullet point right at the top of the slide. We believe PL8 is continuing to deliver on its objectives. Those are the twin objectives of PL8. One is to outperform its benchmark, which is really the ASX 200 benchmark, including franking. And the second is to outperform the income of that benchmark.
So you can see, if you look at the third and fourth bullet point on that slide number 5, the total return of the company up 8.4% for the six months to December. That's a nice capital gain or nice gain for the NTA of the company. A little bit ahead of its benchmark, and it has done the same outperformance of its benchmark coincidentally since inception. So that's first objective met.
The second objective is to outperform the income of the benchmark, and you can see there, the distributed income for the six months was 3.9%, 1.1% ahead of the benchmark, and since inception, 2.2% ahead of the benchmark, which is obviously a per annum number, so not dissimilar to the level of outperformance for the six months to December. We also raised some capital in the period, and we'll get to that on a later slide. Just, just graphically, it's always helpful, I think, to look at the NTA movement over the six-month period, and you can see we started the six months, first of July, AUD 1.04. It moved to AUD 1.07, a little over AUD 1.07 at the end of December.
This is kind of what you wanna see, I think, on an ongoing basis for PL8, is a little bit of gain. There you can see AUD 0.07 from the portfolio performance, which is really a combination of the market's performance and the manager's performance. And then the red box, the larger red box, is the reduction in the NTA that comes from the payment of the distribution. And so that's. I would say if we could achieve that every 6 months, that would be a good outcome. You know, a little bit of capital gain and a little bit of income is really the sort of the holy grail, if you like, for PL8. Interestingly, at the end of the year, the NTA was AUD 1.07.
It's more or less the same level where it is today. A little bit of growth from the portfolio in the year, and we've paid some of that growth out as a dividend. In terms of performance, and Don will cover a little bit more of this in detail later, but this is slide 7. You can see, since inception, as I reflected on an earlier chart, has outperformed its benchmark by a little over, well, 0.1%. 12 months was a more difficult period for the company, although obviously pleasing returns on an absolute basis, up 7.4%. On a relative basis against its benchmark, it was behind the benchmark by about 1.2%.
I would say the one bullet point reason for that is really if you, if you've read the press, you would have known that 2023 was really a year marked by strong performance from high-tech growth, or AI in particular, beneficiary companies. A lot of those companies don't really pay any dividends or pay very small dividends, and so it's not really in the wheelhouse for Plato or for PL8 to invest in those companies. And so when those companies drive an index return like it did last year, I think it's reasonable to expect that this portfolio might lag somewhat, given high dividend-paying stocks were not flavor of the year.
But the good news is, from an income perspective, PL8, on the right-hand side, really did a much better job than the index on the left-hand side from both a cash distribution, which is the top numbers, as well as franking. So you can see there, the PL8 portfolio, on the 12 months to January of this year, outperformed the cash distribution by a little over 1%-outperformed the franking by a little under 1%, which together means from a sort of a fully franked basis, PL8 outperformed by about 2% its benchmark. And if you remember from an earlier slide, that is more or less, what PL8 has outperformed its benchmark since inception from an income-a fully franked income standpoint, around about that 2% per annum.
If you look over the longer period of time, the same is more or less true. So what I commented on the earlier slide in terms of the income distribution, those are the two bottom lines, the sort of more jagged lines, the black one being the PL8 portfolio, and the light gray line being the benchmarks income return. And so that gap has grown over time at about 2% per annum, which has been the outperformance of the portfolio against its benchmark. And then the top two lines, the blue line being PL8 from a total return perspective, and the gray line being the index from a total return perspective. Again, that gap has grown over time, largely as a result of the improvement in the income relative to or the outperformance of the income relative to its benchmark.
This is probably the slide that shareholders love the most, which is just how metronomic the PL8 dividend has been. We've been sitting at that AUD 0.0055 per month for close on two years now. And you can see that that's been delivered very consistently on a monthly basis. It still is the only LIC, PL8 is the only LIC paying monthly fully franked dividends. There are other LITs that are on the income and credit space that pay monthly incomes, but this is, this is the only LIC with a share portfolio that, as far as we know, is paying monthly dividends. So it's quite a unique asset out there on the stock market. And that uniqueness, we think, has driven, on slide 11, its premium to NTA.
It's been pleasing that it's been fairly consistent at that level of around 10%, if you look at that light blue line, which is the premium to NTA. Sort of in the 10%, if you had to take an average range over the last four or five years. Sometimes it's been a bit higher, sometimes a little bit lower, but in general, around about that range. And that's more or less where it is today, AUD 1.20 stock price, AUD 1.07-odd NTA. So, we're very happy with that outcome, and we thank you for your support that has driven some of that. In terms of the capital we raised at the end of last year, again, thank you for your support if you participated in the share purchase plan.
We do get asked, "Why do you raise capital in a vehicle? What's the objective?" The main reason, and it's not the reason for this slide, but the main reason is we do get a lot of reverse inquiries from shareholders saying, "We love PL8, but we would ideally like to deploy more capital at NTA or closer to NTA than at a premium to NTA." And so that's the main reason why we did a share purchase plan, is to give shareholders that ability to invest more capital at closer to NTA. The other reason, which is the point of this slide, is bigger companies, you know, do have benefits for shareholders. The first benefit being lower costs.
So you can see here the corpus, or the, the net assets of PL8 has grown from around about AUD 300 million at IPO back in 2017 to around about, just over AUD 800 million today. That bigger size enables us to amortize the costs of running the company over a bigger asset base, which means that the per share cost of running the company is lower for you as a shareholder. So that's the one benefit. And the other benefit is, is liquidity. So as you know, the size of the company grows and the number of shareholders grows, generally you get more turnover in the shares, which improves the liquidity, the on-market sort of shares, that trade of PL8, and that has certainly been the case of PL8 over its journey since, since IPO. So I think that's it from me.
Don, over to you then on the portfolio and the market. Thanks.
Okay. Thanks, Chris. Just to put a number actually to the last slide that Chris was talking about in terms of the cost implication. When we first listed PL8, the MER, which is management expense ratio, or the costs to the asset base, was just over 1%. In the latest numbers we went through with the auditors only a week or two back, that has now fallen, the MER has now fallen to 0.9%. So, you know, there's been a 10, more than 10% reduction in costs because the company has got bigger. Interestingly, now, the costs for PL8 are exactly in line with the costs of the underlying fund, the unlisted fund.
So you can invest in the same assets, whether you go into the unlisted fund or PL8, and the MERs are actually identical now at 0.9%. Even though there are additional costs in PL8 with directors' fees, not that Chris or myself get directors' fees, but external directors, and ASX listing costs are quite large as well. But anyway, moving on to the market update. Before I get into it, I just reaffirm that, you know, the primary, I suppose, target audience for our PL8 are actually retirees, people who want to live off the income off from their investments. Hopefully, if they've got their money in superannuation, that up to the first AUD 1.9 million can be tax-free. That's just the first slide there, Chris.
You know, we feel our philosophy is if you can generate enough income from the investments that you own to satisfy your lifestyle, you don't need to start selling down assets, and that means that you have less likelihood of having longevity risk of running out of money before you die. There has been some changes to tax rates recently. We saw in the last couple of weeks the stage two tax changes that the current government have put through. They don't really affect retirees or our target audience. This is on the next slide. I mean, all it does, these new stage two tax changes means it just changes when certain tax rates for higher income investors come in.
At the moment, the very highest tax rate, the 45% + 2% Medicare, cuts in at AUD 180,000. Under the initial stage two tax cuts, it would... that would move to AUD 200,000, but the current government have changed it to cutting it at AUD 190,000. But for pension phase investors or indeed accumulation investors, there's no change. So, it is still the case that, fully franked dividends are very, very valuable for retirees and indeed even for accumulators.
What has changed, I think, though, in markets in the last three months, basically, is it is now very much a consensus that we are at the, the peak in interest rates, that the, the likely next movement in Australia is probably gonna be down and possibly, and probably in the U.S. as well, and that has caused a bit of a surge in markets. We've seen some strong markets in December and January, and a, and an all-time peak actually on Friday. So, you know, we have actually markets have rallied strongly in the last few months, and this is on the back of the view that the next move in interest rates is gonna be down. So I think it's probably about as good as it's gonna get for term deposits.
Which is interesting because if we look at inflation and probably one of the reasons why the view is that interest rates are now gonna likely to next move down, is it is very clear that inflation is trending down very strongly. Inflation in December 2022 peaked at 7.8%. In December, but this quarterly inflation for or the annualized inflation to the December quarter of 2023 fell from 7.8% to 4.1%, and the latest two monthly reads on inflation have actually been at 3.4%, which is below RBA forecasts.
And what that means, though, is that when you look at the interest rates, but you take off the current rate of inflation, is that interest rates have only just actually exceeded inflation rates in the last quarter or so, and that's on the next slide. So it's the case that if you're looking at investing in term deposits, et cetera, you're just starting to get a real rate, a positive real rate of return now at those higher interest levels because inflation has come down. Remembering that real interest rates are interest rates after allowing for the underlying rate of CPI or inflation. And it's really inflation coming down rapidly, which has caused these real rates to now just tip up into positive territory. But that certainly has been a kicker for markets.
I'm gonna talk about going forward, and so we'll talk mainly about the results season that just happened in February. By and large, it wasn't a bad results period. We focus mostly on dividends, and I suppose the headline number for us, looking at basically the estimated stocks that we follow, is that the average dividend increase was around 6%, which is actually more than the inflation rate. So dividends on average are keeping up with inflation. Although I think the preferred measure that we would like to look at is not the average, but the median, because that average can be skewed by a couple of big dividend payers. So the median is actually, if you rank stocks from best to worst, it's basically the one in the middle, and how big...
What happened to the stock in the middle, and how big was its dividend change? And it was a +2.7%, so a bit less than inflation, but not bad, so still increasing. If you wanna use a glass half empty analogy, the actual dollar value of dividends that of the stocks we follow that was declared in February, actually fell a bit. It actually fell by about 4%, and to about AUD 35 billion. So it fell from AUD 36 billion last year to AUD 35 billion this year.
And the two major culprits for that, and the same culprits, BHP was the same culprit last year and this year, BHP cut its dividends by about 20%, announced them in U.S. dollar terms, so you can argue the toss about whether where the exchange rates are, but it's roughly about a 20% dividend cut. And Woodside also cut its dividends significantly because oil prices have gone down. In the BHP's case, it's partly because of nickel. It's not just iron ore prices. In fact, iron ore prices were generally up, and BHP's competitors, Fortescue and Rio, actually increased their dividends. But BHP has quite a bit of, nickel exposure, and nickel prices have gone, significantly down.
In fact, so far down that BHP has written off its nickel assets to not only a zero number, but actually written them down to a negative value to take account of any costs of closing the assets, so it's really saying they're worth nothing. It also took a negative from Samarco joint venture in there. But aside from Woodside and BHP, the results we thought were pretty good. You saw some very strong results from some of the insurers, like QBE and Insurance Australia, 60% increase in dividends, Insurance Australia, 67%. Some of the energy, the electricity stocks are AGL, and Origin increased their dividends substantially. Of course, you probably noticed your electricity prices have grown a lot in the last 12 months, and that's the reason.
But, you know, I think this is where you can have a hedge against inflation. If you own companies like Origin, or you own companies like, particularly, the insurers, you can offset the fact that when you open your insurance premium letter, it's getting bigger. There were some negatives, and I'll go through them in a minute, but, you know, it wasn't such a bad thing. I think one interesting one was a lot of areas that people thought would be quite negative, such as retailers, they often are surprised on the upside. Things weren't as bad as what people were expecting, I suppose. I'll move firstly a bit more detail on CommBank, 'cause it is the biggest bank in Australia, and second biggest stock. We thought it was a pretty good result.
Not a stellar result, but people have been calling the banks, and I think the two items I'd just point out, I'm not gonna go through everything, is that bad debts actually fell to nine basis points. So if you think about strategists and economists last year were talking about the world's coming to an end, we've got this mortgage cliff. There's gonna be huge arrears of mortgages and bad debts. It is not coming through from the Commonwealth Bank results. Their mortgage... Their bad debts are actually reduced in the half. It is the case though that probably their profits are about as good as they got, they get.
Another thing that we saw last year and we're seeing again this year, but they actually their profits were down for the half, but they actually increased their dividends by AUD 0.05, so a small increase in their interim dividend there. That's all I want to note on CommBank, but one of the things I think that was interesting, and CommBank have done it for the last couple of years. CommBank is the biggest bank in Australia. They have the biggest credit card book. They analyze the sales through their credit cards, so their big data and all that sort of stuff, they're able to look at the sales of all their on their credit cards, and what they're seeing is a bifurcated economy. The fact is that younger people are feeling the pain.
They are spending less on discretionary items, so, you know, going out to dinner and those sorts of things. But older people, people particularly in the over 55 brackets, are actually spending more, partly because I think they have got money in term deposits. They're getting a higher rate of interest on it, et cetera, or they have savings, and they probably don't have large mortgages. It is the younger people who are either renting or have new mortgages that are feeling the pain. And so what we're seeing is the spending of the older people are actually offsetting the cuts in spending of the younger people, meaning that actually the retail environment is not nearly as bad as what people were predicting.
The other issue is, you know, this time around in the interest rate cycle is there's a lot less people with mortgages. A lot more people are now retired or nearing retirement, and they've largely paid their mortgages off. So, yeah, generally speaking, things were not as bad as what people were expecting. That, to me, is the catchphrase of this result. And you can see that in some of the sales results. In Wesfarmers, you saw some very good results out of their Kmart division. And, Kmart actually increased its sales by 5% when analysts were expecting them to basically be flat, and it was a big contributor to the profit of Bunnings.
Dare I say it, there's a bit of a joke there, but re- or sorry, Wesfarmers, but really the sizzle in Wesfarmers wasn't from Bunnings barbecue; it was actually from the Kmart division. The other areas that we've been talking about for some time have been the insurers, and we did start to see some that coming through, that the insurance divisions were going pretty well. QBE results were quite strong, earning, cash earnings up over 100%, dividend up 60%, as I mentioned. For Suncorp, Suncorp's a bit of a conglomerate. It has insurance, but it also has the banking division, which it is now looking to sell to ANZ. Has been looking for some time, and probably their results highlight why they want to sell it.
Their general insurance profit was up 52%, very strong. Their banking profit was down 25%. They're looking to get rid of that division. They're probably not paying much attention to it. So they'll be much better when they focus only on insurance. But yeah, the insurers are benefiting from both those higher premiums that they're charging you, but also the fact that they're investing those premiums in cash and getting a higher level of cash. I mentioned before about Rio and Fortescue. Iron ore prices have stayed pretty strong, stronger than many people predicted, and we saw that increased dividends, 20% increase in final dividend by Rio and a 44% increase in Fortescue's dividends. So some pretty strong results relative to BHP, which is held down by its nickel operations.
But I think one of the standout performers for me from an income point of view was Ampol. Again, a stock we have been talking up for a while, but Ampol, while its profits were fairly flat or its underlying profits, it actually increased its final dividend by 14% to AUD 1.20, and on top of that, fully franked, of course, on top of that, it paid a special dividend of AUD 0.60. And we've been talking about the likelihood that they would pay specials because Ampol's sitting on a big franking account balance, and so it still has plenty of franking credits to pay out. And while it's paying out a lot of income, it actually has quite low CapEx, so it can continue to pay fairly significant dividends.
And if you actually look at the amount of money and franking credits that Ampol will pay out in the last 12, over 12 months, it equates to essentially 10% if you include the special and you include the franking credits. They're giving 10% of their stock price back to the investors. There were a few low lights, though, and we try and avoid these, and we did avoid these. But if you look at some of the stocks that came up in our process as dividend traps, there was Pilbara Minerals, which didn't pay a dividend at all. We had a 100% probability of dividend cut at the end of the year. South32, significant cut in its dividends, and Magellan also cut its dividends quite a bit.
They were some of the dividend traps that we identified and avoided. Lastly, we have been showing this for a while now, but our chart on slide 26 looks at the... It is really a forward-looking indicator of where dividend expectations are, if you like. Whilst it is, it comes out of our process, we actually forecast the likelihood that companies will cut their dividends. It's been a pretty good indicator. If we went back through time and highlighted the significant cuts in dividends in 2020 during the pandemic, it forecast those very early in sort of March, April, that there will be a tough year for dividends. It also, going back through time, predicted, you know, correctly predicted a lot of dividend cuts in the GFC.
Noting on this slide that a high level is bad. A high probability of dividend cut is bad at the market level. And what has actually happened, and this is the good news here, is that while over the last sort of 2 years, the likelihood of dividend cuts have increased from quite a low level 2 years ago, to a slightly above average level. While it's small, but you can see that the actual probability of dividend cut has slightly reduced over the last you know couple of months, actually. So as people are becoming more positive about the economic environment. So, you know, we're cautiously optimistic. We think interest rates are at their peaks.
The next move is likely to be down, although I believe it's likely to be the second half of this year, not the first half, and I think it's only likely to be one cut this year. But we still see some pretty good dividends out there, so we're still confident we'll be able to deliver strong income to clients. So with that, I'll hand back to Chris, and we'll see if there's any questions.
Thanks, Don. Maybe, if I can be so bold as to just take the first question, 'cause you showed this slide, which I thought was super interesting. But just to understand, so if an investor is invested in an index fund, the ASX 200 index fund, would the gray bar be more or less what their dividend experience was?
Yes, that's correct, because that's really looking at if they owned everything, yes, it's really an index weight, is the gray bar. So that's why at that level, dividends actually fell, which is a negative. But if you were in the right stocks, you know, if you look at the average stock, you actually might have got an increase, and certainly then if you know. So I think-
Yeah
... it's a benefit of being an active stock picker. And also, you know, avoiding those stocks that have big cuts in dividends is quite important.
Great, thanks. Okay. Well, thanks for those comments, Don. Always interesting. Let's go to the audience for questions. We do have a few. And please again, if you do have anything on your mind, just tap it into the Q&A box there. We'll, we'll try and do the speed dating style, so we get through everyone's questions. There's always lights in the PL8 webinars. First question, I mean, I'm happy to take this: "What is the per share amount of the cash reserve?" I think the way I would answer that, I presume the question is about dividends and the ability to continue to pay dividends. And typically with listed investment companies, and the same is true with PL8, as your... The lights have just gone off here, but that's okay. We'll get them back on.
The biggest constraint is the franking account balance on the balance sheet. If you look at our December results announcement on PL8, we spoke about AUD 0.055 equivalent fully franked dividend, is what the franking balance on the PL8 balance sheet is. Given we're paying dividends every month at a level of AUD 0.0055 a month, we've basically got 10 months' worth of dividend cover from a franking balance perspective. If you look forward, some of that franking balance was diluted a little bit from the SPP that we did in December, and so going forward, as that capital has now been invested, that franking balance should drift up a little bit from that level where it was at the end of December.
So we have more than enough cover to pay the current level of dividends, both from a profit and franking credit perspective. Don, the second question is just on the dividend outlook and stability. So you've given us sort of what happened in the period under review, and you've given us your dividend cap forecast, but is there anything you want to add in terms of the outlook?
Well, I think that last slide, or the, the last chart I showed is actually, is the relevant one for that, because it's really highlighting the likelihood of dividend cuts from here, and, and that line has actually fallen a little bit over the last few months, which means it looks like the dividend outlook's getting better. And it's, it's basically, you know, statistically in line with, with the long-term average, so things are looking okay.
... All right, Don, there's one here from Nathan, says: "Congratulations on the performance of PL8 since inception. Any thoughts on establishing an international LIC like PL8, so we can diversify our portfolios outside of Australia?
Well, we do actually have a global income strategy, but it delivers, this is, I suppose the difference is that globally, income is much lower, and you don't get franking. So it, it's been delivering consistently 6% income over time. But that's substantially lower than PL8 because it has no franking, I suppose. But yes, we do have a vehicle there, and, if we get enough support, then we would certainly be looking to launch that as a, as a... Probably, I think, an ETF in the current environment.
All right, Jeff asks: "In order to generate cash to pay dividends, does PL8 sell equities or use option trading strategies or something else?" So do you want to-
Well, we don't, we don't use any option strategies. I mean, we basically buy stocks to collect their dividends. So I do actively trade around stocks, but we buy stocks to get their dividends. So we are not using capital to pay out our PL8 dividends. It's all coming from actual company dividends that we have received, so dividends from your BHPs, your CBAs, your Fortescues, your Rios, et cetera. So there's no capital gains included in that. It's, it's purely dividends that we receive on the underlying portfolio of companies that we own.
Grant asks: "Are you considering another capital raise this year?" Don, maybe I'll answer on behalf of the Board, and so far as to say that, we'll only ever do a capital raise if we believe it's, in the best interests of, of shareholders, and, and that's the first thing. And secondly, that, the balance sheet of the company can, can handle some additional capital. So that's the sort of franking balance comments we were making a little bit earlier. But for PL8... And so I guess we appreciate your feedback. You know, if you, if you've enjoyed the SPPs, and you think that's something we should do more of, then please write to us and, and tell us that. If you, if you feel the opposite, then please do the same, but we're always looking for feedback from our, our shareholders.
What I was gonna say is, for PL8, there's another constraint other than, let's call it, just the company's constraint, whether it's its balance sheet or whether it's in the best interests of shareholders, and that is the capacity constraints of the underlying strategy that Don runs. So Don, I don't know if you want to give us a reflection of that.
Yeah. So look, we're very cognizant that we want to continue to deliver the good income that shareholders have been used to. So we don't want to grow just for growth's sake and get too big for our boots and not be able to generate enough income because we actively trade our portfolio, and we need to be able to continue to do that. So look, we assess that capacity, and we're getting pretty close to it. So we don't want to grow and become too big for our boots and become an index fund and then not deliver on the objectives. So I think at the moment, we would struggle probably to be able to do another capital raise this year.
Having said that, sometimes we have some institutional clients and other clients that may go, and which could free up capacity. But we just don't want to grow for growth's sake, and, you know, we want to make sure we deliver on the objectives of the company.
All right, Don, the last one's from Matthew, and it's a... Well, maybe there's one more coming through yet. It's a tricky one for you because you've got to wear- you're wearing two hats today, but maybe if I can ask you to put your manager hat on, which is: Post the successful SPPs and the economies of scale and the growth of the assets in PL8, can investors expect a management fee reduction in the future?
Well, I suppose, taking my other comments in hand, that we have limited capacity in this strategy, so it's not like we're gonna say we're gonna keep growing and growing and growing and making a lot more money. We're pretty much at that capacity, in which case, we probably would not be looking to reduce our fees. But you have, since the listing of PL8, have seen that MER drop from over 1% to 90 basis points, which is now exactly the same as the MER in the unlisted fund, and we think we provide a good value for money in both those vehicles.
I think it's fair to say, Don, I mean, you know, you're also... We're a shareholder as Pinnacle in your business, and you're always investing in your own business. Some of the new tools that you're deploying in the PL8 portfolio are things you've invested in over the last few years, and frankly, if it wasn't for the ability to grow assets under management, you wouldn't be able to make those investments. So, you know, there's no, sort of, no free lunch if you like. If you want to generate the returns you've been able to generate, you have to carry on investing in your own business.
Yes, and we have invested. We've been... In the last two years, we've basically taken on three senior researchers and a couple of junior researchers. So we continue to try and improve our process, add to the number of red flags, and make sure we're yeah, investing to make sure we can still get those returns because it's a pretty tough game. I would also add that there are no performance fees for PL8. When many LICs do have performance fees, we don't believe it's relevant for this product.
Good, Don. Okay, there's a couple more trickling in here, so let's crack on. Just do justice to everyone. It says: "Thanks for a great result." This is Sally.... Can you explain how you work out that dividend outlook chart that we've got on screen in very general terms?
Yes, I didn't explain it completely, but so what we do is at an individual company level, so it could be a BHP or Westpac or what have you. Using bottom-up fundamentals, we have developed a tool which calculates the likelihood that that company will cut its next dividend. So it only looks out at the next dividend. It's not five years or anything like that, it's just the next dividend. It looks at things like dividend payout ratio. So if a company has a very high dividend payout ratio, there's a likelihood that it will cut its dividends. You know, if it's got a low payout ratio, it's less likely to cut its dividends. If its profits going up, it's good. If its profits going down, it's gonna be bad.
So there's a number of these factors we use at the individual company level. That slide is actually not at the individual company level, but it's a market level. So we take all the individual probabilities and basically average them, but we average them based on the size of the company. So a BHP and a CommBank would have very big weights, and a small company would have a small weight, but we're basically getting an aggregate picture of the likelihood of dividend cuts at the market level. So we think it's a pretty good indicator of future dividends.
All right. Well, probably akin to that or aligned with that question is, AJ asks: "Are we expecting any increase in the level of current dividends?" I presume you're referring to the PL8 monthly distribution. So I don't know if you want to take that one, Don.
Yeah. So, I think at the moment, the directors have, and, you know, I'm not the only one, but there are five of us on there, consider that the dividends are about appropriate given market dividends. I didn't show you another chart, but, if we look at. Yeah, we really are dependent on the level of dividends paid by the market in general. Obviously, we're trying to pick the best stocks out of the market, so we should be able to do better than that, and that's why we deliver a higher yield than the market. But for us to further increase the level of dividends, we'd probably want to see the market dividends, which is, or the dollar value of dividends being paid by the market to go up.
As I said, they actually fell a little bit, so we have to be better at picking the right stocks than to increase dividends or even maintain dividends in that situation. But we think we can maintain dividends. It comes on the back that last year we did see, again, we saw falls in the dollar value of dividends paid at the market level. So it's been a pretty tough environment from that sort of perspective to maintain, I suppose, those dividends. We increased them after the pandemic. We increased them back to the previous levels and then set a further high.
But at this stage, we're not probably forecasting an increase, but we hopefully, as those interest rates cut in and we see better dividends at the market level, you know, in the future, hopefully, we can increase them. But it's certainly... We always have debates about this among the board about what's the appropriate level.
Don, let's make this the last one.
Right.
Do you have any plans to exit or retire?
No immediate plans. I mean, obviously I will one day, but I enjoy what I do. I like getting feedback from clients. I like visiting clients, et cetera, and so, you know, I, I, I love my day job, and I wanna keep doing it, but, we are building up, you know, we now have 15 people in the team. So whilst I think most people know myself, and you may have met Peter Gardner, there's actually 13 other, people with an... And the average team experience is well over 20 years. So we do have a very strong team, team there, but, I have no immediate plans to, to, to retire.
Yeah, I'll vouch for that, Don. I've seen you travel in the last couple of weeks to all corners of Australia to go and meet with investors, so you've still got a good spring in your step. It's great to see. Obviously, you're enjoying it. Okay, I think that's pretty much it. Thank you, everyone, for your participation as always. It's you know, we get 100 or more on these calls. It's fantastic to see a very engaged shareholder base. Don and I and the rest of the Board thanks you for your participation in the share purchase plan, but more importantly, just your ongoing shareholding in the company. We'd love to hear your feedback. If you have anything for us, we're always on the lookout for improvements or feedback, so please send it through.
We will send you a replay of this on the email, so you will have a copy of it in your inbox, probably by the end of today. And Don, with that, I'll say thank you to you for your time, and we'll sign off.
Thanks, Chris, and thanks, shareholders.