Why the Argo Investments (ASX:ARG) share price is pushing higher today

In morning trade the Argo Investments Limited (ASX: ARG) share price is pushing higher despite the release of a disappointing half year result.

At the time of writing, the investment company’s shares are up almost 1% to $8.79.

How did Argo perform in the first half?

It was a difficult six months for Argo, with management noting that the COVID-19 pandemic led to many Australian companies maintaining a cautious approach to declaring dividends.

According to the release, numerous companies in its investment portfolio substantially cut or cancelled their dividend payouts, which significantly impacted Argo’s half year profit.

For the six months ended 31 December, Argo reported a profit of $67.4 million. This was down a sizeable 43.3% from $118.8 million a year earlier. Similarly, earnings per share fell by 44% to 9.3 cents.

One positive, though, was that the Argo board will not be cutting its interim dividend by the same margin. It has declared a fully franked 14 cents per share dividend, down 12.5% on the same period last year.

It commented: “Although dividend income was down sharply, Argo’s Board declared a modestly lower interim dividend of 14.0 cents per share fully franked.”

“A key benefit of Argo’s listed investment company (LIC) structure is our ability to draw on reserves of retained earnings and franking credits. This enables Argo to cushion the impact of fluctuations in dividend income through the economic cycle, allowing a more sustainable dividend flow to shareholders, as distinct from index funds,” it explained.

Argo also provided an update on its investment performance during the half.

The release explains that Argo trailed its benchmark over the period with a 12.3% return. The S&P/ASX 200 Accumulation Index recorded a return of 13.2% over the same period.

Outlook

Management appears cautiously optimistic on the remainder of the year.

It commented: “We are generally optimistic in our outlook for the year ahead. Despite numerous and ongoing state border closures, Australia has continued to fare well both economically and in the fight against COVID19.”

“Economic growth has rebounded, and the outlook has improved with the economy likely to continue to benefit from ultra-low interest rates and strong commodity prices. However, we are also cognisant of potential challenges arising as unprecedented stimulus measures are unwound and the Australian and global economies transition to a new normal.”

“With a well-diversified portfolio of quality stocks, no debt and a strong balance sheet, Argo’s business model remains resilient. Argo maintains profit reserves and franking credits so we can prioritise providing sustainable and tax-effective dividend income for our shareholders,” it concluded.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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