Top NSE investors to earn Sh1bn in bank dividends

Record bank profits and subsequent declaration of generous dividends has left 14 top individual investors en-route to earning a combined Sh1.1 billion in the coming weeks.

The dividend windfall is based on the results of Equity, Barclays, NIC, CfC Stanbic and DTB banks, which have announced their 2014 performance.

Further announcements in coming days will grow the pot of some of these investors even larger.

Equity Group Holdings CEO James Mwangi tops the list of those on course to earning millions of shillings in dividends, commanding a third of the anticipated payday.

Mombasa-based billionaires the Bablas, Andrew Kimani, and the family of the late Philip Ndegwa follow in the list respectively.

Institutional investors also make the list of those set to walk away with millions of shillings from the huge earnings of the banking sector, which has emerged as one of the most profitable segments of the economy.

Mr Mwangi is arguably the dividend king, who is set to earn Sh433.2 million for his 6.5 per cent stake in Equity, which has reported the largest net profit of Sh17.1 billion. His 6.5 per cent interest in the bank includes a 1.62 per cent shareholding by his wife Jane Njuguna.

READ: Mwangi family's fortune in Equity tops Sh12bn

The Bablas are ranked second, with the family expecting a combined dividend of Sh163 million from their interests in KCB and Equity.

The investors have been accumulating banking stocks in the past few years, a move that has seen them rank among the largest individual investors in Kenya’s two largest lenders.

Mr Kimani is set to earn Sh162.6 million for his 2.4 per cent interest in Equity, which has proposed the largest absolute dividend payout of Sh6.6 billion.

KCB, which was previously the most profitable bank, will follow with a Sh6 billion payout, representing 36 per cent of the Sh16.8 billion net profit it made last year.

Meanwhile, the Ndegwa family is in line to pocketing Sh160 million from their ownership of a 25 per cent stake in NIC Bank, which will pay a total of Sh640 million in dividends.

The dividend is particularly rewarding for NIC shareholders, including the Ndegwas, who last year pumped an extra Sh2.1 billion into the company to fund its growth plans.

The additional funding, in the form of a rights issue, was in effect a dilution of past returns including dividends. NIC is betting on the new funds to grow its earnings in the coming years and ultimately reward shareholders with higher dividends and capital gains.

The phenomenon of individuals earning hundreds of millions of shillings — amounts that dwarf the annual profits of some listed firms — is testament to the power of concentrated investments in blue-chip companies.

Most investors who follow this strategy, however, tend to be founders or directors whose close association and control gives them the confidence to maintain such concentrated portfolios.

Ms Leah Muguku, a relative of the late businessman Nelson Muguku, will receive Sh59.3 million for the 0.8 per cent stake she inherited in the bank.

The Mugukus have sold the majority of the shares the patriarch held in the bank, earning billions of shilling from the divestitures. The original stake would now be earning more than Sh500 million in dividends — based on Equity’s current dividend policy — assuming it was left intact.

Mr Simon Thuo, another long-term investor in Equity Group, is slated to earn Sh47.6 million for his 0.7 per cent interest in the lender while Franklin Ndii will pocket Sh36 million for his 0.54 per cent interest in Equity ahead of the bank’s chairman Peter Munga who stands to get Sh27.9 million for his 0.4 per cent per cent stake.

Mr Munga has significantly reduced his ownership in the bank, earning billions of shillings in the process.

READ: Munga, Mugukus cut Equity stakes for hundreds of millions

Benson Wairegi, the chief executive of insurance firm Britam, is enroute to pocketing Sh16.3 million for the 0.25 per cent stake he holds in Equity. He will be followed by Mr James Kimani who is scheduled to get Sh15.7 million for his 0.24 per cent stake.

Billionaire investor Jeremiah Kiereini will earn Sh12.2 million for his 0.5 per cent interest in CFC Stanbic Holdings.

This is one of his few investments at the Nairobi Securities Exchange (NSE) where his presence has shrunk from a mix of corporate takeovers and share sales that came after he ran into trouble with the Capital Markets Authority (CMA).

Mr Baloobhai Patel, another billionaire investor, is expecting Sh9.8 million from his minority interests in Barclays and DTB.

Mr Patel has the bulk of his net worth — in excess of Sh3 billion — outside banking stocks.

Mr Duncan Ndegwa will receive Sh5.5 million for his 0.8 per cent interest in NIC Bank while billionaire investor Amin Nanji Juma is slated to earn Sh5.3 million for his 0.9 per cent stake in DTB where he is the single largest individual investor.

The large dividend payouts earned by the top investors reveal only part of the wealth creation machine that is the NSE.

This is because nearly all of the publicly traded firms retain half or more of their net profits for reinvestment, funding organic growth or acquisitions that in the end amount to a sort of compounded interest for continuing shareholders.

The effect is all the more powerful if the reinvestment can be executed at rates far superior to what is available to shareholders in the wider investment universe.

“We believe we can invest the retained earnings at satisfactory rates compared to what shareholders can do themselves,” Mr Mwangi told the Business Daily in explaining the company’s dividend policy of paying out about 40 per cent of net profits.

Some companies like Centum have taken an even more radical approach, banning dividends altogether to fund new investments and projects it believes will benefit shareholders more than cash distributions.

This zero-dividend policy means shareholders in need of cash have no option but to sell all or part of their shares.

Cigarette manufacturer BAT is the only NSE firm that pays out its entire profits as dividends, signalling that it does not need extra cash to run its operations.