CRH must choose -- dividends or growth
Forget about praying for rain, CRH is praying for liquidations. Three years after the start of the economic downturn, the building materials sector that CRH dominates along with French giant Lafarge, is still not experiencing that once-in-a-generation shake out everyone predicted.
Yes, there are distressed companies littering the landscape; German giant Heidelberg Cement, for example, has a crippling debt load and many of the private sector players are hopelessly insolvent. But for CRH to hoover up market share and see some price stabilisation, the market must shrink and companies must go bust, or be taken over. So far, there has been little of this creative destruction, so CRH is waiting and watching.
In the meantime, the company -- under chief executive Myles Lee -- will have to accommodate itself to the reality that building materials will be a tough slog for two to three years more.
That means nervous times for CRH shareholders, who are currently benefiting from a generous dividend yield of 5.3pc, a virtual bonanza for its sector.
The full-year payout, in raw cash terms, translates into €419m, a big chunk of money even for CRH. At the moment, the company is able to pay, but it cannot stick with this level and also keep up its previous outlay on acquisitions. Something has to give.
The company and its shareholders have come to that awful fork in the road -- do they go for growth via acquisitions and capital expenditure, or stay the current size and keep paying out?
Irish shareholders, after the year they've been through, are likely to give only one answer -- keep sending those cheques, Mr Lee.