Investors face income starvation as NSE firms drop dividends from menu

Squeezed earnings, reorganisation of business models and a drive to expand are testing the patience of investors at the stock market.

Many companies at the Nairobi Securities Exchange (NSE) – which is trading at eight-year lows – are increasingly becoming reluctant to declare dividends or issue bonuses, leaving owners of capital waiting.

In October, for instance, KenGen broke its near-decade-long tradition of paying out dividends after profits dropped 41 per cent to Sh6.7 billion in the absence of a tax credit enjoyed in 2015.

For the first time since going public in 2006, the electricity generator last year sent investors away empty handed.

An analysis by Business Beat on the 64 listed companies at the NSE found that over a third (20) of the companies have not paid dividends since 2014. A further 15 companies have been reducing their dividends per share.

Last year, only Safaricom and East African Breweries managed a special dividend in addition to normal dividends. NSE Ltd was the only one with a bonus issue, but that came at the expense of dividends.

Loss-making Eveready East Africa and Britam Holdings are the only two companies that announced plans to share their squeezed fortunes with shareholders.

Longest drought

In October 2016, Eveready said it would break a seven-year drought for shareholders and pay out its first dividend since May 2008 after it sold high-value land it owned in Nakuru.

The battery manufacturer last week announced a net loss of Sh206.5 million, with the board of directors recommending that a dividend not be paid for the year to September 2016.

Insurer Britam, on the other hand, paid Sh0.30 in dividends per share, despite posting a full-year loss of Sh1 billion.

Marshalls East Africa, a firm that is engaged in selling and servicing of motor vehicles, holds the record for the longest drought.

The firm last paid dividends in October 2007, with investors offered Sh1 per share held.

However, since 2012, its revenues have been in a free fall, plunging from Sh234.3 million to Sh81.3 million last year, and throwing the company into losses.

Popular brands from diverse sectors, such as Sameer Africa, Atlas African Industries, Kenya Airways, Uchumi, East African Portland Cement, Mumias Sugar and Sanlam Kenya (previously Pan Africa Insurance) have also disappointed shareholders looking to earn an income through dividends.

To some investors, especially those with small stakes, the value of the lunches, umbrellas and other items that their companies appease them with during annual general meetings (AGMs) have become much higher than the meagre cheques they receive as dividends.

At the close of 2016, the then Kenya Power managing director, Ben Chumo, had to calm investors during an AGM as they complained over the “little” goodies the company had given them.

“I have listened to you and I understand. In fact, were it not for last-minute logistical problems, those bags would have had more than what you see now,” he said on a day when he announced a final dividend of Sh0.30 per share.

As dividends reduce or disappear, the transport costs involved in attending an AGM exceed the payout small investors receive from their stock holdings, said Alois Chami, a seasoned investor with a few shares in several companies.

“Other companies get losses and you just get prepared to go home empty handed, but for many, they keep telling us they want to pump back profits for expansion. We travel from far only to be given umbrellas and the same reasons all the time,” he said.

Indeed, with 35 listed firms – more than half – plunging investors into a dividend drought or reducing the amount of money paid out on every share held, shareholders are not a happy lot.

In the automobiles and accessories segment of the NSE, Sameer Africa last announced a dividend of Sh0.30 in March 2014, while Car & General paid Sh0.60 the same year, a drop from Sh0.70 per share in 2013.

Growing and selling

All agricultural companies at the NSE, save for Kakuzi Ltd and Sasini Tea, have been cutting dividends per share.

For Eaagads, a Ruiru-based firm engaged in growing and selling coffee, shareholders last received a share of profits in 2012.

Kapchorua Tea declared a Sh5 per share dividend in June 2015, similar to what it offered in 2014. However, this was a drop from Sh7.50 per share in 2013 and 2012.

Investors in Limuru Tea are crossing their fingers that this year the company will not withdraw dividends completely.

The Sh1 per piece dividend the last two years has been a major cut, considering the Sh7.50 per share it paid in 2014. In 2015, the firm’s revenue was Sh122.37 million, up from Sh92.25 million the previous year.

In June last year, Williamson Tea offered its investors Sh20 per share, which was half the amount it paid investors in June 2015. Its revenues increased by Sh246.6 million in its latest financial year.

Investors in the commercial and services sector have also had mixed fortunes. Since 2010, Atlas Africa Ltd investors have been attending AGMs and walking away without dividends.

The same is true of Express Kenya, whose fortunes waned after it lost a lucrative logistics deal with East African Breweries Ltd in 2010.

For TPS Eastern Africa, a final dividend of Sh0.25 announced in April last year was more than five times smaller the Sh1.35 dividend declared in 2015 and 2014. In 2012 and 2013, shareholders had received Sh1.30 per piece.

The woes facing retail chain Uchumi Supermarket have seen investors pump in money in a bid to steady the company, but in return, they last received a Sh0.30 dividend per share in 2014.

Further, the retailer’s return on equity is at negative-219 per cent, which means that for every Sh100 an investor puts in, he or she makes a loss of Sh219.

In construction, ARM Cement paid out Sh2 per dividend in 2012, which dropped to Sh0.60 in 2013 up until 2015. It left investors empty handed last year as losses set in.

Crown Paints Kenya has also cut on its dividends per share from Sh1.75 declared in August 2015 to just Sh0.60 last year.

However, since 2014, Bamburi Cement has been consistent with its investors. Since 2014, it has paid an interim dividend of Sh6 followed by a final dividend of Sh7. The last one was declared in March last year.

In the banking sector, where many players have been declaring mega profits, National Bank of Kenya cut back on its dividends per share to eventually declare none from March 2014.

Market leader by asset base Kenya Commercial Bank paid a dividend of Sh1 in March last year on the back of a profit of Sh19.6 billion – a jump of 16 per cent. This payout, however, is lower than the Sh2 per share in 2015 and 2014.

KCB told shareholders last year that it plans to conserve cash payouts to drive business growth.

Expansion drive

But Co-operative Bank, Standard Chartered Bank, Stanbic Bank, I&M Bank, Barclays Bank of Kenya, Equity Bank and Diamond Trust Bank increased their dividends in the period between 2012 and 2015.

In the investment sector, Centum Ltd, which recently hit the headlines for issuing out millions of shillings to employees as bonuses, has had an irregular dividend payment history.

It has been on expansion drive, which saw investors withstand an eight-year dividend drought. Last year, however, it declared a Sh1 dividend per share for a total payout of Sh665 million after making a profit of Sh9.9 billion. In 2008, it had paid Sh4 per share.

Home Afrika, a property investment firm, last paid a dividend in 2011 of Sh5 per share, while Olympia Capital and TransCentury last did so in 2014, at Sh0.25 and Sh0.40, respectively.

For investors in the manufacturing sector at the NSE, dividends have been relatively consistent among firms like East African Breweries, Carbacid Investments, BOC Kenya, British American Tobacco and Unga Group.

But Mumias Sugar last paid dividends in 2012, giving investors Sh0.50. This was after a Sh0.40 dividend in 2009 and 2008.

Telecommunications firm Safaricom has also been regular with its dividends. Last year, it issued a special dividend of Sh0.68 on top of a final dividend of Sh0.76.

palushula@standardmedia.co.ke