Dividend vs NCIB - The Full StoryI wanted to quantify the capital GH has returned to its owners since it converted from a trust to a corporation on December 31, 2010.
Below you'll find GH's NCIB from March 10, 2011 to July 20, 2021
In all 2,968,595 shares were repurchased at an average price of $9.61 per share. GH invested a total of
$28,537,480 to repurchase those shares.
Gamehost NCIB | | | |
| | | | |
| Period | Shares Purchased | Average Price Paid | Total Dollar Amount Spent |
| Mar 10, 2011 - Mar 9, 2012 | 504,340 | $11.01 | $5,553,685 |
| Apr 12, 2012 - Apr 11, 2013 | 155,200 | $11.99 | $1,860,850 |
| Apr 17, 2013 - Apr 16, 2014 | 466,650 | $13.75 | $6,416,273 |
| Apr 17, 2014 - Apr 16, 2015 | 340,300 | $14.80 | $5,037,805 |
| Apr 24, 2015 - Apr 23, 2016 | No shares purchased | | |
| Apr 25, 2016 - Apr 24, 2017 | No shares purchased | | |
| May 29, 2018 - May 28, 2019 | 199,045 | $10.94 | $2,176,681 |
| Jul 15, 2019 - Jul 14, 2020 | 386,895 | $5.06 | $1,958,549 |
| Jul 21, 2020 - Jul 20, 2021 | 916,165 | $6.04 | $5,533,637 |
| | | | |
| | | | |
| Total | 2,968,595 | $9.61 | $28,537,480 |
As all of you shareholders know, the above is not the only capital GH has returned to its owners as a large dividend used to be paid (and will soon again).
From January 1, 2011 (post income trust days) to July 20, 2021 GH has paid
$174.3M in dividends to its owners. For those of you that prefer it on a per share basis, you have received $7.41 in dividends per share in this timespan.
In all GH has returned
$202.8M to its owners (sum of share repurchases and dividends) over this 10 year and 7 month period. Very nice.
Would owners have been better off not having received any dividends during this 10 year and 7 month period and instead have GH buy back more stock with the same dollar amount that had been paid in dividends ($174.3M)?
This is an interesting question.
The last day that GH was GH.UN (a trust), the unit closed at $11.25. Today the stock price is $7.30. If we add the all dividends received of $7.41 per share to the current stock price of $7.30 we get an adjusted stock price of $14.71. So owners have made $3.46 per share which translates to a 31% total return.
Now just looking at the adjusted stock price is flawed and misleading because the owner that received the $7.41 in cumulative dividends has presumably invested that money in another stock which will likely have increased in value. If that owner wanted the cash to live off of, it would allow the owner not to have to sell another investment and therefore profit from that aspect. So the profit from what the owner did with the dividend must be added to his 31% total return.
I would argue that owners would have been better off by not receiving the dividends and instead have GH use the $174.3M of cash to buy back more stock.
What would that look like?
18.1M additonal shares would have been repurchased if we use the average price-weighted share price of $9.61 (above chart) GH bought back stock at over the last 10 year and 7 month period.
This would leave only 4.6M shares outstanding today.
You might even say GH would have been privatized some time ago as the 5 person BOD own 8,469,087 shares amongst themselves but let's say there would still be 4.6M shares outstanding today.
What is a fair price to privatize GH if it had only 4.6M shares outstanding?
Well let's look at the numbers. From 2011 - 2019 GH averages $21.3M in owner earnings per year.
$21.3M / 4.6M shares = $4.63 in owner earnings per share.
How much would you pay today to receive $4.63 a year for life?
Well if you wanted a 10% annual return you would pay $46.30. You would be very willing to pay a
much higher price than that if you can grow owner earnings over time as GH surely will.
It appears that paying the dividend was not the best option in allocating capital.
Now the above is all theoretical. No way you say all that stock could be acquired at $9.61. True but remember in actual practice a rerating would occur on the stock as shares were repurchased well below its intrinsic value and it would trade at a much, much higher price.
A premium is not only given when a company privatizes but also when a company
appears to be in the process of privatizing and buying back 18.1M shares would fall under the category of appearing to be privatizing.
Buying back stock forces a rerating of its
price and its multiple making all owners wealtier.