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J#23 – I just learned something new from NGI’s recent dividend and the company’s Senior Management.

NGI’s recent dividend and the company’s Senior Management.

At no point in time should we stop learning, for one because change is constant. The rules 10, 5, or even a year ago may not apply today. Still, it came as a surprise that I was charged withholding taxes on my recent Navigator Global Investment (‘Navigator’ or NGI at the Australian Securities Exchange) dividend.

Navigator you may recall was the 3rd free recommendation I wrote up for you. In my special report, I indicated that there are NO withholding taxes for non-Australian resident taxpayers as Navigator’s profits (and subsequently their dividends) are deemed to be 100% Conduit Foreign Income (CFI).

A copy of my dividend statement is reproduced below – you will notice that there was NO (AUD$0.00) CFI attributed to the dividend and therefore, to my surprise, I was hit with a 15% withholding tax expense.

An explanation of what “conduit foreign income” is, and Navigator’s dividend history, can be found here and here.  So, I sought clarification with Navigator and they provided an explanation that is detailed in the email exchange below (the email exchange is reproduced with Navigator’s consent).

NGI Dividend notice 26 Sep 2020

The answer, in summary, is: Australian tax legislation is complex and the last dividend had a withholding tax due to the recent loss incurred by NGI’s parent company.  Even though at a group/consolidated level they made a profit (and therefore cash was available for distribution), because the parent company made a loss, no CFI could be attached to the dividend and therefore a withholding tax was payable.

This is likely a rare occurrence, in that the world is currently in a rare situation. The loss at NGI’s parent level was caused by a revaluation of its subsidiaries as a result of Covid-19’s impact on business operations. 

In my email exchange with Navigator’s CFO & Investor Relations Office, they confirm that:

“(They) do not anticipate similar accounting losses in the parent company going forward.  (Their) expectation is that the next dividend paid by Navigator will have 100% Conduit Foreign Income credits attached to it.”

I have been investing for dividends over the last 10 years and I have not encountered this instance in the past. This tells me this happens once in a blue moon. But it’s good to learn and experience these things so I can share them with you. I also learned something good about NGI’s Senior Management. That is…

My exchange with Navigator's CFO & Investor Relations team was a positive experience.
They were approachable and responsive. In short, they value their shareholders.

In evaluating management, the CEO, CFOs and Directors’ university degrees and experience in the company’s field of business are all laid out on the company’s website and in the annual reports. Their performance and stewardship can be measured by reading the company’s yearly financial statements. 

But what we don’t see on any paper or website is the missing x-factor in evaluating management. And for me, this counts just as much as, if not more than, their biography on the annual report — it is senior managements’ attitude towards shareholders. Are they approachable? Do they value their shareholders? And are they a person of their word?

What promises they make should be said without any “fluff” and with assurance that they are held accountable to them.  They should be accessible, transparent and treat all shareholders (after all we are, the owners of the business, whom they work for) respectfully.

When I was at Chase Manhattan Bank, Singapore, working as an auditor of their futures business, no written legal contract could be made given the speed and volume of trades in the open outcry trading pits. For a trip down memory lane, this video shows the old outcry trading pits in the Chicago Mercantile Exchange.  It is all done electronically today.  “Dictum Meum Pactum” was the rule of doing business then.  If you executed a futures trade, you stood by your trade. Doing futures business, back then, was on a hand signal basis. Trust, reputation and rapport development with your counter-party were fundamental components to successful long-term investing.  In our case, as long-term shareholders of the company, the attributes of building trust with a company is equally important.

Fast forward to my experience with NGI’s management, I certainly walked away with the impression, from this and other correspondences, that they are approachable and responsive.  They treat shareholders with respect.  I value this and this is another important reason Navigator is a long-term investment.  Their current, as at close of business on 25 September, 2020, trailing dividend provides a 13.5% yield (net of withholding taxes for non-Australian resident taxpayers).

So my recommendation to buy NGI stands, and I think it is a good buy up to AUD$1.93.  This recent hiccup in the dividend payouts, which led me to get to know the NGI management better, only boosts my confidence in the stock.  I strongly believe that my money is in good hands.

Good investing,

Peter

Peter's email to NGI management re: dividends Sep 2020
NGI management's response to Peter re: dividends Sep 2020