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DoubleDragon (DD)cash dividends may take a while as retained earnings propped up with unrealized valuation gains

It has been five years since DoubleDragon Properties Corp. (DD) common shareholders tasted dividend. In the near term, it is most likely that DD holders might not taste dividend still.

On April 2016, DoubleDragon Properties Corp. issued a cumulative, non-voting, non-participating, redeemable at the option of DoubleDragon Properties Corp., convertible at the ratio of 1 preferred share to 1 common share, perpetual Preferred Shares now trading as DDPR. DDPR has a dividend rate of 6.4778% per annum. DoubleDragon Properties Corp. issued 10 Billion Pesos of DDPR with a dividend rate of 6.4778% per annum. That would translate to a total yearly dividend to DDPR holders of 0.64778 Billion Pesos.

The DDPR dividend is not the reason for DoubleDragon Properties Corp. not declaring cash dividend to DD holders. Over the years DoubleDragon Properties Corp. has been growing steadily its investment properties. On the last four years DoubleDragon spent around 32 Billion Pesos in building its portfolio of investment properties. It is typical of a growing company not to give cash dividend to shareholders as it reinvest what little earnings it has to further build or grow the company’s business.

Talking about earnings, DoubleDragon Properties Corp. might not have been profitable over the years where it not for its aggressive accounting. DoubleDragon Properties Corp. has been recognizing as Revenue/Income in the income statement the unrealized gains from changes in fair values of investment property. DoubleDragon might not have been profitable over the years had it did not recognized the valuation gains in the income statement. The retained earnings of the DoubleDragon Properties Corp. is therefore composed of these unrealized valuation gains. To distribute these retained earnings might be too much. It would be like distributing the unrealized valuation gain to shareholders. It would be distributing to shareholders future income. Even the dividend to DDPR might also be questionable as it also comes from retained earnings from unrealized valuation gains.

The best way to trade DoubleDragon Properties Corp. is to dump DD as it might be worthless right now and take the high-yield 6.4778% DDPR. DoubleDragon Properties Corp. will not be able to afford to miss the dividend of the 6.4778% DDPR as missing it could significantly damage its credibility in the capital market which might have already been tainted with its aggressive income statement accounting. In this time of low to no cash from operations, access to capital market is the company’s lifeblood.

Disclaimer and Disclosure: This is an independent analysis for discussion purposes with the aim of giving stock traders and investors an independent view point. Accuretti Systems Inc. in the course of day to day trading may have own, or is considering buying or disposing, the shares of the companies mentioned in this commentary.

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