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Why the MFF Capital share price crashed 7% today

Sebastian Bowen
share price crash

On the ASX loser boards today is an unlikely stock.

Along with big falls in the Oil Search Limited (ASX: OSH) and Worley Ltd (ASX: WOR) share prices is MFF Capital Investments Ltd (ASX: MFF).

MFF shares are down 6.51% at the time of writing to $3.59 per share when compared with Friday’s closing price of $3.84. During trading today, the MFF share price got all the way down to $3.56, which represents a 7.3% drop from the same high watermark.

It’s unusual for a Listed Investment Company (LIC) to have such a steep fall, as a LIC’s value is usually derived from the basket of underlying shares that the company owns (which dilutes market drops to some extent).

Your first thought might be the fears over the coronavirus that are currently gripping the ASX (as well as global markets). But MFF doesn’t have any overweight exposures to travel-related stocks like Qantas Airways Limited (ASX: QAN). In fact, most of its portfolio is tied up in US shares like Mastercard, Visa and Coca-Cola.

Why is the MFF share price plummeting?

It’s actually because MFF Capital shares have gone ex-dividend today. Not for the normal dividend payment of 2.5 cents per share though.

On January 29, 2020, MFF Capital released an announcement to the ASX outlining the special fully-franked dividend of 20 cents per share that shareholders would be receiving on February 19. The ex-dividend date for this special dividend is today – meaning that if you didn’t hold MFF shares as of Friday, you won’t be eligible to receive the payment.

It’s a massive dividend for MFF shareholders (as discussed above) since the stock normally pays an annual dividend of between 3 and 4.5 cents per share. MFF shares have a current trailing dividend yield of 0.97%.

This special dividend would equate to a yield of 5.57% based on current prices (or 7.96% grossed-up). The ineligibility of new MFF shareholders to receive this payment today has likely resulted in the share price drop.

Why is MFF paying a special dividend?

In the accompanying ASX release, MFF had this to say about the special dividend payment:

“The special dividend reflects the Director’s review of recent circumstances including record equity markets, the level of realised gains in recent periods by the Company and the Directors’ preference for the Company to maintain a strong balance sheet.”

Foolish takeaway

In my opinion, this means that management can’t find anything better to do with the cash in the current market conditions (meaning they think the stock market is overpriced). No more special dividends are planned for the future at this stage.

I think it’s telling that management has made this decision. Stock markets around the world are at record highs – which means that future returns are at a risky level. I’m certainly keeping this view in mind going forward and I think it’s a worthy point of view to consider for all ASX investors.

The post Why the MFF Capital share price crashed 7% today appeared first on Motley Fool Australia.

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Sebastian Bowen owns shares of Magellan Flagship Fund Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Mastercard and Visa. The Motley Fool Australia has recommended Mastercard. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020