Determining dividend yield is a real problem for many non-US stocks, and AMBEV (ABV) is a good example. We think the yield is 2.81% (we'll say why shortly). Here is what some commonly referenced sources say the yield is:
- Bloomberg: 0.90%
- Yahoo Finance: 0.30%
- Morningstar: 2.26%
- Schwab: 3.38%
- Fidelity: 3.38%
- CorporateInformation (WorldScope): 2.91%
That's quite a range. They don't all make readily clear whether they are talking about trailing or indicated yield either.
We have seen similar problems with other foreign stocks. The problem comes from a lack of adequate effort on the part of data suppliers to read and understand the stocks on which they report.
Most data houses are not analyst houses, they are data houses, and as such they use computer programs with fixed logic to interpret data. If the data does not conform to the data type and structure assumed by the computer programs, then you get problems.
In the US, for the most part, dividends are paid quarterly and in level amounts unless their is a shift up or down in the amount to be paid. In other countries that tendency breaks down. Some stocks pay once a year, and some pay twice a year. Those that pay twice a year, often pay a low, safe provisional dividend at mid-year and then an amount at year-end based on how well they did.
If either of those circumstances is processed by a program that assumes quarterly dividends, then the indicated yield (annualizing most recent dividend) could be reported way off the mark.
If a program reports trailing twelve month dividend payments divided by the current price, it is much more likely to be right, but still there are problems.
Even in the US, programs may not filter out one-off special distributions (such as might come from the sale of a major division of the company) from regular dividends associated with operations. That was the case recently with a major US defense contractor.
A year or so ago, a there was great disparity in the reported yield of a large Spanish telephone company, because they classified some of the dividend payments as from capital and not from earnings. Some data sources excluded the capital source payments, while others did not.
So here we are with Ambev, a beer company out of Brazil -- we like beer as an investment, and we enjoy it as a product.
Companhia de Bebidas das Americas - Ambev, is a Brazil-based company. AmBev and its subsidiaries produce, distribute and sell beer, carbonated soft drinks and other non-alcoholic and non-carbonated products in 13 countries across the Americas. The Company conducts its operations through three business units: Latin America North, Latin America South and Canada.
Some of the brands they make or distribute are familiar in the United States, and globally -- names like Bud, Pepsi and Lipton.
Every month we do a screen for dividend stocks that meet rigorous operating criteria and minimum dividend payment history and yield attributes. ABV turns up some months and did this month, but the minimum yield in our screen is 3%. So does ABV pass that screen element or not? -- pretty close we think, but a 0.30% from Yahoo and a 0.90% from Bloomberg necessitates a closer look.
Our screen also calls for no decrease in dividends in recent years, but the chart above says the dividends did decrease. That certainly forces us to look more closely at the data as well.
What the heck is its yield? is it 0.30% as Yahoo says or 3.38% as Fidelity says? Or is it something in between -- we think 2.81%.
So, we go back to the source - the company. There is far too much reliance of data from third (and fourth and fifth ...) parties, and far too little from directly reading company published documents. When we go there, we instantly see a suspect problem. They label some payments as "dividend" and some as "interest on capital", as shown in this dividend history table from their website:
The question then becomes what should we as investors consider dividend?
Going to the FAQ section of the website, ABV explains the distributions this way:
14. What is Interest on own Capital ("IOC")?
The IOC (Interest on Own Capital) is another tool for returning cash to shareholders, calculated applying the TJLP - Taxa de Juros de Longos Prazos (which is the official interest rate used as reference in long-term loans) over the company's Shareholder's Equity and limited to half of the Company´s net income. The IOC is considered as a deductible expense for tax and social contribution purposes, reducing the amount of both taxes.
The shareholders (including holders of ADRs) pay Brazilian withholding tax on the amounts received as interest on own capital, whereas no such payment is required in connection with dividends received. However, the increase in the amount distributed related to the tax benefit more than offsets the amount paid by the shareholder for withholding tax. Withholding tax is usually paid by Brazilian companies on behalf of their shareholders.
15. What is Ambev's dividends policy?
Ambev's by-laws provide for a minimum mandatory dividend of 35% of the company's annual net income, as determined by Brazilian Corporate law accounting principles. The mandatory dividend includes amounts paid as interest attributable to shareholders' equity.
Based on that, we think "dividends" and "IOC" are dividends for our purposes.
If you add up the trailing twelve months of payments, regardless of label, you get 2.18 in local currency. Bloomberg reports the stock price in local currency at 77.46. For us, that makes the trailing twelve month yield 2.81%.
What do you think it is?
Disclosure: QVM has no positions in any mentioned security as of the creation date of this article (August 9, 2012).
Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.