Investors book Sh145m gain for foregoing Liberty payout
Investment brokers on the trading floor of the Nairobi Securities Exchange. Liberty’s stock has gained 70.3 per cent in the past one year. PHOTO | FILE
What you need to know:
The capital gain is the result of Liberty’s share rally to Sh23 as at close of market on Friday, representing a 44.6 per cent increase from the Sh15.9 at which the 20.4 million shares were issued in lieu of dividends.
Liberty in April announced a dividend payment of Sh1 per share, asking shareholders to decide whether they wanted to receive the payout in cash or shares.
Investors in Liberty Holdings who took up the insurer’s shares instead of a cash dividend payout for the year ended December 2013 have booked a Sh145 million paper profit by exercising this option.
The shareholders –including majority owner South Africa’s Liberty— by forfeiting the cash dividend also increased their combined ownership in the Nairobi Securities Exchange-listed firm by 3.9 per cent.
The capital gain is the result of Liberty’s share rally to Sh23 as at close of market on Friday, representing a 44.6 per cent increase from the Sh15.9 at which the 20.4 million shares were issued in lieu of dividends.
Liberty in April announced a dividend payment of Sh1 per share, asking shareholders to decide whether they wanted to receive the payout in cash or shares.
The firm says 142 shareholders received their dividends in cash amounting to Sh157.1 million –net of taxes— on their 9.8 million shares.
The remaining dividend equivalent to Sh324.9 million after taxes was paid out as shares in what is technically known as scrip dividend, leading to the capital gains and dilution of those who asked for cash.
The 20.4 million units issued as scrip dividend to 3,972 investors is however now worth Sh470 million, generating the Sh145 million paper profit.
Liberty’s stock has gained 70.3 per cent in the past one year, marking the second highest gain in the insurance segment after Britam that has appreciated 81 per cent in the same period.
The unique dividend payout allowed Liberty to save the same amount that it would have paid out in cash, freeing up more funds for use in operations and expansion.
It enabled the firm retain Sh940 million or 85 per cent of the Sh1.1 billion net profit earned in the year ended December 2013. Liberty plans to expand its insurance business in the short term including the life division.
Other publicly traded firms have opted to fund expansion by suspending, cutting or maintaining flat dividend payouts.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
