Fontana doubles dividend to $100m

Pharmacy company Fontana Limited is paying $100 million in dividends today, Wednesday, against annual profit of $276 million.

The dividend at eight cents per share is double the previous distribution of four cents, which was declared last year. Fontana paid a bigger dividend even though its annual profit was $30 million lower than in 2019, but the declaration comes after a strong first quarter that beat pre-pandemic levels.

“We feel that this year’s dividend is justifiable in this environment,” CEO Anne Chang said in an interview with the Financial Gleaner.

The payment will not cause the company to miss out on expansion opportunities, added management. The company is majority owned and managed by the Chang family through Burbank Holdings Limited, which holds a 79 per cent stake.

“We have a very strong cash position and minimal debt,” Chang said.

Fontana’s cash holdings have doubled in the past year, from $314 million to $630 million at year ending June 2020. The company’s policy is to pay out 25 per cent of annual profit as dividend.

“But this year was more,” Chang said.

The distribution equates to 36 per cent of the annual $276.5 million profit made by Fontana, but taken together with the four-cent dividend, the two distributions average 26 per cent of the combined $582 million in profit made by Fontana in the past two years, putting the pharmacy operator more in line with policy.

Today’s eight cent distribution equates to a 1.5 per cent yield on the stock price of $5.08. The FTNA stock price has declined 27 per cent year to date, in keeping with the overall market decline since the pandemic.

But while the dividend improves the total return to shareholders, Chang said it was not intended to offset the dip in the stock price.

“No, that was never the reason or intention. But our value is definitely underrated, and a number of analysts feel the same as well,” she said.

Fontana’s positive performance continued into its September first quarter, during which it grew by 20 per cent and profit by 144 per cent year on year.

“Despite the impact of COVID-19 and reduced operating hours, we saw increases in prescription sales, transaction volumes and average basket sizes. We continue to be encouraged by the growth in new customers, which is driven by our new Waterloo Square location as well as the strength of our brand,” said Chang.

Revenue surpassed $1.1 billion over the July-September quarter, up from $920 million a year earlier. Profit grew to $45 million, from $18.4 million.

During the quarter, Fontana’s operating expenses increased by 5.0 per cent, well below the growth in revenue. Chang said the company benefited from increased scale as it could now spread costs across six locations, with the addition of the Waterloo Square outlet in Kingston.

steven.jackson@gleanerjm.com