4th Interim Div. and Rebasing of Future Dividends

RNS Number : 2525A

Aberdeen Latin American Inc Fd Ltd

25 September 2015

 

25 September 2015

ABERDEEN LATIN AMERICAN INCOME FUND LIMITED

FOURTH INTERIM DIVIDEND ANNOUNCEMENT,

REBASING THE LEVEL OF FUTURE DIVIDENDS

Fourth Interim Dividend

The Board of Aberdeen Latin American Income Fund Limited (the "Company") has declared a fourth interim dividend of 1.25p per Ordinary share (1.25p: 2014) in respect of the year ended 31 August 2015 payable on 30 October 2015 to Ordinary shareholders on the register at close of business on 9 October 2015. 

As stated in the Company's half yearly report for the six months ended 28 February 2015, weak markets and global uncertainty means that the Company's annual dividend target of 4.25p per Ordinary share has been kept under review by the Board.  The continuing weakness of Latin American currencies in relation to sterling and the challenging economic environment have adversely impacted the Company's earnings and, as a result, dividends paid in respect of the year ended 31 August 2015 will be uncovered by earnings.

However, the Board recognises the importance of predictable income to investors, particularly in the current low interest rate environment and concluded that the fourth interim dividend should be maintained at 1.25p.  This will require the use of the Company's remaining revenue reserve and also a small payment of approximately 0.22p from capital.

Rebasing the Level of Future Dividends

The Company has maintained the current level of dividend payments at 4.25p per Ordinary share since its launch in July 2010.  At 24 September 2015, the Ordinary shares offered a yield of 9.3 per cent*, compared to the 3.3 per cent* and 3.2 per cent* available from the MSCI Latin American Index and the MSCI Emerging Markets Index respectively.  For information the FTSE All-Share Index, which many UK retail investors have regard to, currently offers a yield of 4.1 per cent.

At a time when the yield on cash and gilts is so low, the Directors believe that the attraction of income and income growth is still very important to shareholders and the market generally.  Having regard to the challenging economic environment in the Latin American region, and indeed globally, and following discussions with the Investment Manager, the Board concluded that dividend growth from the current level was unlikely in the short term and the weak currency environment weighs on this.  Furthermore, the Board believes that maintaining the current relatively high level of dividends is inhibiting the Investment Manager from conviction investing and that this is detrimental to achieving future capital growth and, accordingly, to the total return to shareholders.  The Directors believe that rebasing future dividend payments to a level that:

·     is sustainable and offers the prospect of longer term growth;

·     still remains attractive within the Emerging Markets closed-end funds sector,

·     increases the Company's investment flexibility to achieve capital growth through increasing the weighting to equities when deemed appropriate; and

·     as a result, offers Shareholders the prospect of an enhanced total return;

should be attractive to shareholders as a whole and will enhance the Company's appeal to investors generally.

The Board has decided, therefore, to rebase the annual dividend to 3.5p per Ordinary share, equivalent to 7.7 per cent on the closing mid-market price per share as at 24 September 2015.  Accordingly, in the absence of unforeseen circumstances, it is the Board's intention to declare first and second interim dividends in respect of the financial year ending 31 August 2016 each of 0.875p per Ordinary share.

The Board and the Investment Manager expect that, having rebased the level of dividends paid, the Company will be able to start to grow the level of dividends once there is evidence of strengthening currencies and economic stability returning to the region.

Investment Outlook

Notwithstanding the poor performance of Latin American markets, which has been driven not only by domestic factors but also external factors including falling commodity prices, US monetary policy and the Chinese economic slowdown, the Board and the Investment Manager still believe in the fundamental investing case. 

Most Latin American balance sheets have healthy international reserves and low debt levels compared to more developed markets.  Brazil and Mexico continue to see high levels of FDI which should increase over the long term as further economic reforms are implemented.  The Investment Manager still believes that demographic trends are supportive longer term with a rising population in the workforce.  Following the recent down turn, valuations and real bond yields are more compelling relative to emerging markets generally.  Latin American equities have been the worst performing asset class and the Investment Manager believes that valuations are becoming more attractive with underlying investee companies' profits expected to recover as demand stabilises and costs are kept under control by management who the Investment Manager believes have the capacity to operate effectively through such a downturn.  This should result in earnings growth and the Investment Manager sees valuations and dividend yields of Latin American equities as attractive and supportive of an eventual re-rating once profitability recovers.  Furthermore, the Investment Manager believes that the bulk of currency depreciation is in the past. 

General

Notwithstanding the rebasing of the level of dividend payments, the Board intends to maintain its policy of charging 40 per cent of the management fees and finance costs and 100 per cent of the other operating expenses to income.

Under its management agreement with the Company, Aberdeen Private Wealth Management Limited is entitled to both a management fee and a company secretarial and administration fee.  Aberdeen Private Wealth Management Limited has agreed to waive its company secretarial and administration fee of £112,000, equating to 0.17p per share, for the year ended 31 August 2015.  This waiver constitutes a smaller related party transaction for the purpose of LR 11.1.10 R of the Financial Conduct Authority's Listing Rules.

*Source: Bloomberg, as at 24 September 2015

Enquiries

Gary Jones / William Hemmings

Aberdeen Fund Managers Limited

T: 0207 463 6000

 

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