Why Banks’ Dividends Lower To Telcos, Energy, Others
Many banks need to restructure their outstanding shares to be able to pay good dividends to their shareholders.
Analysts identified this as a major constraint banks face, which is making their shares capital to be highly diluted while it impacts on their bottom-line.
They further argued that since banks are not generating enough profits, as a result of the weight from their operating cost, to cover outstanding shares would automatically weaken their share prices and lower dividends paid to shareholders.
As it is known, outstanding shares can impact how liquid a stock is, which in turn often affects the volatility of its price.
The National Coordinator of the Progressive Shareholders Association, Boniface Okezie, said outstanding shares in the hands of shareholders are affecting bank’s bottom-line and impacting negatively on the dividends declared to shareholders.
According to him, this is a reality the banks are faced with, but some banks are surmounting the problem and adopting measures which include hurting the issuing of bonus shares to shareholders.
“Instead, what they (the banks) do is trying hard to increase dividends payout. They are really coping in that direction. But, with new rules from the regulators to now write-off the excess shares from their unissued shares, it will help eliminate such fears in the future.
“But I don’t think it is really a big problem for the banks. They will handle it to the best interest of their shareholders and paid also good dividends that notwithstanding,” Okezie said.
Also, an Investment and Portfolio Analyst, Abel Ezekiel, said many of the banks might have to restructure their outstanding shares in the hands of shareholders as this is believed to be impacting on their bottom-line and general performance in the stock market.
“I may not really pinpoint why their shares are dropping,” but many of the banks have outstanding shares, highly saturated in the hands of investors,” Ezekiel said.
According to him, FBN Holdings has about N35.5 billion; Zenith Bank, N32/N34 billion; Access Holdings, N35 billion; and Guaranty Trust Holding Company about N29.4 billion.
“These are humongous outstanding shares. This is why many of the banks cannot do bonus shares,” he said.
Ezekiel pointed out that Wema Bank with almost N40 billion outstanding shares took the determination to restructure its outstanding shares and the bank now pays good dividends.
“Wema Bank which used to pay 0.2k, 0.3k dividends now pays 0.30k because the bank now has very lean outstanding shares which it can use to pay good dividends.
“Another bank that did that was Stanbic IBTC some years back. The bank restructured its outstanding shares and made it smaller,” he recalled.
Ezekiel maintained that some of the banks have outstanding shares because of the bonus the banks have given out and the acquisitions and mergers done over the years.
“So, it now makes their shares capital to be highly diluted and voluminous in the hands of shareholders. If they cannot have enough profits to actually cover the outstanding shares, it will be weakening their share prices and they will be declaring lower dividends which will impact negatively on their share prices,” he added.
Meanwhile, the Nigerian stock market posted a remarkable performance in the first half of this year gaining over N5 trillion.
The All-Share Index (ASI) and market capitalisation appreciated by 21.31 per cent and 25.29 per cent to 51,817.59 basis points and N27.94 trillion respectively, from 42,716.44 basis points and N22.296 trillion.
However, sectoral performance showed that the banking index depreciated by 2.04 per cent to 397.79 basis points to close in the red zone.
“A number of things that contributed to the performance is the quality of issuers or companies listed on the Nigerian Exchange Limited (NGX) which are doing very well,” Ezekiel said.
Notably Airtel Africa, MTN Nigeria Communications, Dangote Cement, Seplat Energy and BUA Foods were among the stocks that lifted the NGX to record a historical 13-year high.
For instance, MTNN shares which opened the year at N197 rose to N230 in June after it peaked at N270; Airtel Africa shares jumped from N955 in January to N1,732.20 in June to become the most expensive security in the market; while Seplat saw a rise to N1,300 in June from N650 it opened at the beginning of the year.
“These are companies doing very well and in sectors considered to be active and driving the Nigerian economy,” Ezekiel said, adding that investors reciprocated by patronising these stocks.
“These companies are also paying good dividends. These will definitely enhance their bottom-line and add value to the shares that will make investors patronise them,” the portfolio analyst said.
Guinness Nigeria also came on stream from nowhere in the last one year as the company’s share price rose from N13, N14 per share in 2018, 2019 and 2020 to peak at N110 before dropping to about N90.5 in June.
While all these companies were impacted by the COVID-19 pandemic as overhead costs lower their bottom-line, however some of the companies have resulted in diversifying their products, bringing innovation to their operations, Ezekiel also asserted.
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