Nestle the popular choice for defence

  • Business
  • Friday, 10 Jan 2003

By Kathy Fong 

Nestle (M) Bhd has proven to be a good defensive stock that has consistently rewarded shareholders with impressive dividends. 

Since its initial public offering (IPO) in December 1989, the company has never had a bonus issue or made a rights issue. Hence, its paid-up capital today remains unchanged at 234.5 million shares. 

Records show that Nestle has consistently increased its dividend over the past 13 years: from 23 sen per share in 1990 to RM1.18 per share in its last financial year ended Dec 31, 2002. 

Even during the Asian financial crisis when many companies slipped into the red, Nestle paid a dividend of RM1.499 per share in 1998, but was less generous in the subsequent year, paying 54 sen per share. The lowest dividend so far was 37 sen per share in 1990. 

If one had been a faithful investor of Nestle, one would have pocketed dividends totalling RM10,491 from one lot of Nestle shares bought 13 year ago. 

One lot of Nestle shares bought at RM8.50 in 1990 was worth RM30,491 (inclusive of total dividends so far) at Dec 31 last year. 

The faithful investor is also sitting on a capital gain of RM11,500 as Nestle’s share price had climbed to RM20 at end-2002 from RM8.50 on Jan 2, 1990. 

The return on investment is even higher for those who had subscribed to Nestle’s IPO in 1989 at RM5.20 per share and held on the shares up to now. 

The IPO subscriber will have been rewarded with a return of RM20,091, taking into account the dividend payments and the rise in the share price. 

The share price has appreciated by RM14.80 compared with the IPO price of RM5.20. 

Nestle was listed on the KLSE main board on Dec 13, 1989. It offered 21.038 million shares to the public. 

The IPO price was the highest approved by the Capital Issues Committee then. At RM5.20 apiece, the stock was valued at 14 times the price-earnings (P/E) ratio for earnings in financial year 1989, and 11 times in 1990. 

Nonetheless, Nestle shares were 8.43 times oversubscribed, and made a spectacular debut on the KLSE with a RM3.60 premium at the opening bell. 

The impressive dividend payout underscored Nestle’s financial performance. 

The company’s turnover nearly tripled to RM2.58bil for the financial year ended Dec 31, 2001, compared with RM968.6mil in 1990. Its pre-tax profit ballooned to RM264.7mil in financial year 2001 from RM105.6mil in 1990. 

The food manufacturer began operations in Penang in 1912 as Anglo-Swiss Condensed Milk Co. Today, it has eight factories and markets more than 300 food items. 

In its 90 years here, the company has cultivated a strong bond with its customers. 

The established brand names are considered some of the most valuable assets of Nestle, say investment analysts. 

Nestle products consumed range from a cup of hot Milo at the breakfast table to a plate of Maggi mee goreng at a mamak stall and to a drink of Nescafe or a KitKat bar during coffee break. 

The management’s strategy to expand and diversify the product range is another factor driving Nestle’s earnings growth. 

TA Asset Management Sdn Bhd senior general manager Ang Kok Heng commented that Nestle is a “boring” stock that has little trading opportunity to rake in quick bucks, given its steady share price. 

However, it is a defensive stock that helps shield investors' money from the fluctuation in market sentiment. 

The beauty of Nestle lies in its steady and rather resilient earnings. “But you can't expect exciting growth from it,'' says Ang. 

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