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Listed company dividends rise despite decline in profitability

There are eight locally listed companies on the Uganda Securities Exchange (USE). With the exception of the Vision Group – its reports are based on a financial year and not a calendar year – the other seven companies combined paid-out more dividends to shareholders despite the overall decline in profitability. The companies include dfcu, Stanbic, Uganda Clays (UCL), Bank of Baroda (BOBU), British American Tobacco, NIC, and Umeme.

A dividend, for those who may not understand, is the share of the after-tax profit a shareholder is paid based on the number of shares they hold.

An example: dfcu declared Shs68.4 dividend per share. Now, NSSF owns 7.46% of dfcu translating into 55.8million shares. To find out how much earned in dividends from dfcu = Shs68.4 * 55.8 million. The answer is Shs4b.

According to the analysis done by reviewing the annual reports and financial results, dividends paid to shareholders rose by 65% to Shs185bn in 2018 compared to Shs112bn in 2017. That means shareholders walked away with a higher share of profit than in 2017. This goes against the tide whenever there is reduced profitability.

The overall after-tax profit of the 7 listed companies declined by 6% to Shs408bn in 2017 compared to Shs435bn in 2016. It is important to understand that dividends are paid after profits are declared. It is based on the after-tax profit of 2017 that a dividend will be paid – or not – to shareholders.

Why then would companies pay-out more in dividends yet profitability declined?

Umeme had a slump in profitability which affected the total listed company profitability.

A closer look at the numbers shows that one company contributed to the drop in after-tax profit. Umeme had a 74.4% drop in after-tax profit in 2017. Its profit slumped from Shs138bn to Shs35bn. In this blog post, some of the factors contributing to this decline were outlined. The reduction in after-tax profit was largely expected, considering that in the first half of 2017, Umeme had made a loss of Shs47.5bn.

Because of Umeme’s size on the stock exchange, a significant drop in profitability was visible in the overall performance of the listed companies. Of all the 7 companies, only Umeme registered a drop in profitability. That is what mostly caused the reduction in profitability.

For the rise in dividends, it was a combination of dfcu posting a record profit plus Stanbic and Bank of Boroda increasing the percentage of the profit they pay-out as dividends to shareholders.

Dfcu’s total dividend pay-out rose from Shs18.5bn in 2017 to Shs51bn in 2018. This was mostly due to the improved profitability of the bank that led the board to declare that the dividend per share would rise to Shs68.24 from Shs25.19 per share.

“dfcu Group’s dividend policy is designed to address multiple objectives. The main considerations are to maximize shareholder wealth, increase market capitalization, ploughing back of additional profits for business expansion and maintaining consistent stream of dividends to shareholders. dfcu Group paid a total dividend of Shs 25.19 per share to ordinary shareholders for the year ended 31 December 2016. The board of directors of the Group are recommending a total dividend of Shs 68.24 per share” (dfcu annual report 2017)

There was an overall increment in dividends paid.

Bank of Baroda’s board, surprisingly increased the dividend payout by 200% despite the flat after-tax profit performance. The board increased the dividend from the annual ritual of Shs2.5 per share to Shs7.5 per share. That means the total pay-out to shareholders rose to Shs18.7bn from Shs6.7bn. A handsome pay-day for shareholders.

According to the annual report, “It was also proposed to pay dividend on the entire increased capital i.e. including Bonus Shares.”

Stanbic Bank was the other factor. The bank paid out dividend rose by 50% even after net profit only rose by 4.2%. Stanbic’s total pay-out increased from Shs60bn in 2017 to Shs90bn in 2018. This as the board recommended that each share is paid Shs1.76 from Shs1.17.

“This dividend pay-out was proposed having considered the capital requirements to support the strategic growth ambitions of the Bank and also been assessed for stress testing of the current and projected capital adequacy required to ensure there are no adverse effects on capital requirements in the foreseeable future.” (Stanbic Annual report 2017)

British American Tobacco (BATU) still remains the only listed company with a 100% dividend policy. BATU made a profit of Shs12bn. The shareholders split this entire amount among themselves, with each share being paid Shs246.

Uganda Clays kept its dividend at Shs1 per share, maintaining dividend pay-out policy for the second consecutive. Umeme, on the other hand, reduced its dividend payment, whereas NIC did not declare dividends for shareholders.

 

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