Dividend Payments in the Nigerian Capital Market - A View

April 6, 2012 / Proshare Research

For many investors, dividend-paying stocks have come to make a lot of sense in Nigeria given the almost cultural belief that making returns on investment is the essence of engaging in any investment or business plan. Many investors think of dividend-paying companies as having low-return investment opportunities compared to high-flying small cap companies whose volatility can be pretty exciting; thus representing dividend-paying stocks as more mature and predictable. In the last few years, activities in this regard appear to be dull, the practice nonetheless provides a combination of consistent dividend with an increasing stock price which offers earnings potential powerful enough to get excited about. Dividends paid by corporate firms are therefore viewed positively by the investors, firms and the general public without question. The firms which do not pay dividends are conversely rated by these groups without consequential impact on share prices. The people who support the relevance of dividends payment clearly state that regular dividends reduce uncertainty of the shareholders i.e. the earnings of the firm is discounted at a lower rate, thereby increasing the market value. However, it is exactly the opposite in the case of increased uncertainty due to non-payment of dividends. The dividend policy of a firm traditionally helps the decision to pay cash dividend in the present or paying an increased dividend at a later stage building a perception of growth, strength and viability. The firm could also pay in the form of stock dividends which unlike cash dividends do not provide liquidity to the investors; however, it ensures capital gains to the stockholders and as such determines the form of payment. Empirical Data in the NCM In the year 2010, out of the 199 First Tier Equities listed on the main board of the Nigerian Stock Exchange, Eighty-Four (84) firms representing 42.21% of the entire listed first tier equities, paid dividends to its investors with Large CAP, Medium CAP and Small CAP companies comprising of 7, 22 and 55 quoted firms respectively. Large CAP companies that made the top ten in this period were NESTLE and NB. TOTAL and MOBIL both made the top as Medium CAP stocks while FTNCOCOA and CAP both made the chart as Small CAP dividend paying stocks. The number of companies that paid dividend in the year 2011 witnessed a slight drop in total figure Seventy Six (76) out of 186 First Tier Equities listed on the main board in the year under review (a drop of 8 or 10% from 2010 figures). This figure represents 40.86% of listed First Tier Equities with Large CAP taking 7 while Medium and Small CAPs took 19 and 50 in that order. Two financial services companies, GUARANTY and ZENITHBANK, both made the list as Large CAP stocks while TOTAL and NNFM BOTH made it as Medium and Small CAPs stocks. As at Q1 2012, Twenty (20) quoted firms out of the 187 First Tier Equities listed on the main board have proposed dividends to its investors representing 10.70% of the listed First Tier Equities. 3 Large CAP companies are characterized in the figure while Medium and Small CAPs firms have 7 and 10 correspondingly. ZENITHBANK led the chart as a Large CAP stock while PAINTCOM and WAPCO both appeared as Small and Medium CAP stocks respectively.

No of Companies that Paid Dividend btw 2010 to 2012 No of Companies by CAP Larg e Medium Small CAP CAP CAP 7 7 3 22 19 7 55 50 10

Year 2010 2011

Length of Period Full Year Full Year

No of Listed First Tier Equities 199 186 187

No that Paid Dividend 84 76 20

% 42.21% 40.86% 10.70%

2012 Q1 Source: Proshare Research/NSE

Further analysis of this data revealed that the Financial Services Sector has the highest number of dividend paying companies all through the periods reviewed and this sector was closely followed by those from Consumer Goods, Services and Industrial Goods sectors in that order.
Dividend Payment by Sectors Year Sector Financial Services Consumer Goods Services Industrial Goods Oil & Gas Conglomerates ICT Agriculture Construction/Real Estate Healthcare Natural Resources Source: Proshare Research 2012 5 4 3 3 0 1 1 1 1 1 0 2011 26 13 11 8 4 3 3 2 2 2 2 2010 20 15 13 12 8 4 3 3 3 3 2

In the year 2012, ZENITH, PAINTCOM and WAPCO led the top ten (10) dividend paying companies while the Oil Marketing firms comprising TOTAL and OANDO both led the chart in 2011, closely followed by GT Bank. The 2010 top ten chart was principally led by TOTAL, MOBIL and FTNCOCOA. Top Ten Dividend Paying Companies

2012
Company ZENITHBANK PAINTCOM WAPCO COURTVILLE VANLEER VITAFOAM NAHCO JBERGER NESTLE CAP Sector Financial Services Industrial Goods Industrial Goods ICT Industrial Goods Consumer Goods Services Construction/Real Estate Consumer Goods Industrial Goods Banking Building Materials Building Materials Computer Based Systems Packaging/Containers Household Durables Transport-Related Services Non-Building/Heavy Construction Food Products-Diversified Building Materials Sub sector Dividend Declared 95kobo 8 kobo 75k 5 kobo 30kobo 30kobo 25k 2.40k 11.05k (Final), 1.50k (Int) 1.50k 1 for 5 Bonus Declared CAP Size Large Small Medium Small Small Small Small Medium Large Small

2011
TOTAL OANDO GUARANTY NNFM ZENITHBANK DANGSUGAR UAC-PROP NASCON ROADS ENAMELWA Oil & Gas Oil & Gas Financial Services Consumer Goods Financial Services Consumer Goods Construction/Real Estate Consumer Goods Construction/Real Estate Consumer Goods Petroleum and Petroleum Products Distributors Integrated Services Banking Food Product Banking Food Product Real Estate Development Food Product Non-Building/Heavy Construction Household Durables 600k, 200 N3.00 75k,25k 90k 85k 60k 55 kobo 50k 50k 42k 1 for 4 1 for 4 Medium Medium Large Small Large Medium Small Small Small Small

2010
TOTAL MOBIL FTNCOCOA OANDO FLOURMILL NESTLE CAP NB UACN NB Oil & Gas Oil & Gas Agriculture Oil & Gas Consumer Goods Consumer Goods Industrial Goods Consumer Goods Conglomerates Consumer Goods Petroleum and Petroleum Products Distributors Petroleum and Petroleum Products Distributors Crop Production Integrated Services Food Product Food Products-Diversified Building Materials Beverages-Brewers/Distillers Diversified Industries Beverages-Brewers/Distillers N8.28 N7.00 N3.50k N3.00 N2.00 N10.60 N1.60k, N1.00 N1.50, 0.89k N1.30k N1.15k 1 for 4 1 for 3 1 for 2 1 for 10 Medium Medium Small Medium Medium Large Small Large Medium Large

Source: Proshare Research/NSE

It is natural for shareholders of quoted companies to anticipate dividend payment at the end of every financial calendar year YET it must be appreciated that companies do and can decide to re-invest the profit(s) made in the business through retained earnings. Some believe that company profits are best re-invested back into the company while others are in support of companies that return profits to shareholders. The former group tend to view such company management as having run out good ideas for the future of the company and may impact the fortunes of the stock in a clime that has been traditionally sold the message that dividend payout is a measure of progress. The challenge for the NSE is to encourage companies to justify their dividend payment policies as a function of their forecasts, holding such companies accountable to its internal processes of profit warnings, facts behind the figures and the believability index of the information upon which investors take decisions.

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