High dividend payouts fail to attract more investors to capital market
Attempts by quoted companies to woo investors with high dividend payouts have not yielded the desired result, as capital market investors blame investment apathy and illiquidity for the poor performance and low share prices and market capitalisation at the Nigerian Stock Exchange (NSE).
The President, Association of Stockbroking Houses of Nigeria (ASHON), recently revealed that about 27.01 per cent of companies listed on the NSE equities market are still trading at par value of 50 kobo, just as about 47 out of a total 174 quoted companies remained flat at 50 kobo per share as at last Friday. With the equities remaining at par value, it means that the shares have retained the values quoted in the corporate charters, as such, this will undermine the maturity value of such stocks. Indeed, the market performance for the 2016 was one of the best recorded since the 2008 global financial crises, as most of the listed firms recorded improved performance especially in profitability, with a good number of them declaring dividend to shareholders, amid harsh operating environment. Last week, market indices appreciated by 7.68 per cent. The last time the stock market recorded such improved performance was in the week ending April 2, 2015, when the index closed with a week to date gain of 18 per cent, valued at a whopping N2 trillion due to expectations that followed the election of President Mohammadu Buhari.
Investors who spoke with The Guardian on the development, argued that investors’ confidence in the market would remain low, until government focused more on policies that would boost liquidity and make the market thrive for both local and foreign investors. They maintained that Nigeria’s natural endowments still make it a very attractive investment destination, which must be strategically supported by well thought-out policies. A breakdown of corporate performance of some listed firms’ for the 2016 financial year, showed that Unilever Profit after tax increased by 158 per cent to N3.07 billion from N1.19 billion in 2015, while turnover rose from 59.2 billion to N69.8 billion representing 17.8 per cent growth.Based on the improved performance, the directors of the company declared a total dividend on N378.3 million, translating to 10 kobo per share to shareholders. Dangote Sugar Plc announced a profit after tax of N14.4 billion for the close of 2016, representing an increase of 29.26 per cent compared to N11.14billion in 2015, while revenue appreciated to N167. 72 billion against the N101.06 billion recorded in 2015, representing 68 per cent growth.
For the banking sector, contrary to great apprehension over likely poor bottom-line due to headwinds in the financial sector, GTBank Plc ended the year with 3.7 per cent rise in profit before tax to N120.7 billion from N116.4 billion, while profit after tax grew by 5.3 per cent to N99.4 billion, up from N91.4 billion. The directors recommended a final dividend of N1.52 per share, having paid an interim dividend of 25 kobo, bringing the total dividend to N1.77 per share or N51.33 billion. Furthermore, investors complained that while the regulators and stockbrokers have been working hard to create new products to fast-track growth, the buy side of the market remained weak, especially from the local investor.
Specifically, the President, Institute of Capital Market Registrars, Bayo Olugbemi, pointed out that due to investors’ apathy, supply is presently outstripping demand for shares in the market. He argued that without favourable monetary and fiscal policies from government and other positive macroeconomic variables, the impact of such improved performance and dividend payout by firms’ may not be felt in the market. Olugbemi also called for consistency with the foreign exchange (FX) policy in line with global best practices, adding that it is the local investors who ultimately will bring stability to the equity market.
“One thing is certain, if the shares are there and no one is picking them, of course the market will be depressed and that is what we are seeing in the market presently. Generally, in the economy, there is no liquidity and the foreign investors that left the market are not coming back. So I see the issue of supply over stripping demand. Secondly, there is also the non-availability of fund to buy shares in the stock market.
“The issue of FX which government is currently addressing is a big problem if not sustained. For foreign investors, if the exchange rate is not favourable to them, they will withhold their money and wait till the exchange rate is stabilised, a rate that is a true reflection of what is happening on the economy. “I think if that happen, there will be more inflow of FX and that will whet the appetite of foreign investors. The new FX window so far so good, if what we are seeing is sustained I think very soon we will have a balanced and better FX regime.”
The President, Standard Shareholders Organisation, Godwin Anono, said unless government and regulators ‘wielded the big stick’ on firms that reneged on the promise to list their shares on the NSE secondary market after undertaken private placement estimated at about N700 billion during the boom period, the problem of illiquidity may persist. According to him, companies that had undertaken private placement during the boom have tied down investors’ funds without listing the shares on the Exchange to generate returns as stated in the prospectuses. He noted that this has created much liquidity problem for the equities segment and further depressed the market, as these retail investors do not have the purchasing power to patronise the market.
He argued that if part of the money is recovered and deployed to the stock market, the bourse would have the needed funds to spur activities in the market, attract more investors and bolster the economy.“The regulators and government must go after those companies that came to raise money in the market in the time past. They collected money from these shareholders with the promise that they will list on the floor but till date nothing has happened and you see them move around freely and sit on board of many companies and still leaving big while retail shareholders are suffering in penury.” The President, Pragmatic Shareholders Association of Nigeria, Bisi Bakare, explained that where supply is more than demand automatically prices would drop.
“Many companies are making profit and this is not what we expect in 2016 year end, we thought it will be worst than 2015. Most of them their revenue and dividend is good Government should assist companies and create conducive the environment for business to thrive.”