Investors set to receive lower dividends in new year

Nikhil Hira, a partner at Deloitte says uncertainties over the election will result in cash-preservation strategies. Photo/FILE
Nikhil Hira, a partner at Deloitte says uncertainties over the election will result in cash-preservation strategies. Photo/FILE  Nation Media Group

Investors are in the next three months expected to receive news of flat or lower dividends as more companies opt to preserve cash in an uncertain business environment.

A recent survey of 64 companies in East Africa by Deloitte, including listed and private Kenyan firms, found that more than 70 per cent of them are not planning to raise dividends in the next 12 months.

The conservative dividend payout plan comes after slower profit growth in the ended year but can partly be attributed to the March 4 General Election that has raised perceptions of the country’s political risk profile.

“Uncertainties over the election will result in cash-preservation strategies, including stagnant or lower dividend payouts,” said Nikhil Hira, a partner at Deloitte. “Profits in 2012 have also not been as good as hoped.”

High interest rates contributed to a tough business environment for the larger part of last year.

The mixed performance of corporate Kenya is captured by the record number of profit warnings issued last year by listed firms. The bourse witnessed profit alerts from 10 companies compared to two in 2010.

Companies like the National Bank of Kenya and Kapchorua Tea have recorded significant profit drops while others such as Kenya Airways, Eaagads, and KenolKobil have issued profit warnings after posting half-year net losses.

Kenya Airways posted a Sh4.8 billion loss, Eaagads posted Sh81.4 million and KenolKobil posted Sh3.8 billion loss.

Other Nairobi Securities Exchange-listed firms that will keep a flat dividend payout despite recording profit growth include Co-operative Bank, which is expected to pay shareholders a dividend of Sh0.4 per share, same as last year.

The move to cut or keep flat dividends means most shareholders will be betting on share price appreciation to grow their wealth, a strategy that is hinged on the outcome of the upcoming elections.

Strong foreign investor interest has helped the stock market to record significant gains in the ended year but the momentum has started slowing down on a profit-taking trend that is expected to dominate the next few weeks, according to Genghis Capital.

Total market capitalisation has gained 46.5 per cent over the past 12 months to Sh1.2 trillion from Sh868 billion. The NSE 20 Share Index rose 28.9 per cent in the same period to close the year at 4,133.02.

But nearly a third (19) of the listed firms have recorded share price losses in a similar period, led by those posting losses or reduced profitability.