Data Hub

Investors dividend payouts offer relief in pandemic year

SAFARICOM-AGM

Safaricom shareholders during an annual general meeting at the Bomas of Kenya in Nairobi on August 30, 2019. FILE PHOTO | NMG

BDgeneric_logo

Summary

  • Dividend payments in a difficult year will be a relief to shareholders and will be crucial in helping them cope after suffering from the dip in the economy that teetered to near recession.
  • The pandemic has also resulted either in redundancies and salary reductions which has a negative impact on people’s savings.
  • The government, which owns shares in some of the companies will be among the biggest gainers.
  • Safaricom announced a surprise Sh0.45 per share dividend payout, prompting investors to scramble for their shares pushing the value of the company stocks to an all-time high of Sh38.50 and the paper value of the telco to Sh1.5 trillion.

Companies have resumed paying dividends to shareholders despite a difficult year as a result of the coronavirus pandemic that led to calls to conserve cash.

When the Covid-19 pandemic struck last year, it negatively affected the performance of many firms. Some resorted to suspend cash distributions forecasting weaker earnings. The pre-emptive move was meant to ensure they had ample liquidity should the pandemic persist.

But as the year ended and now a vaccine in the offing, companies are now reviewing those plans and are rewarding shareholders with even higher returns than in 2019.

Dividend payments in a difficult year will be a relief to shareholders and will be crucial in helping them cope after suffering from the dip in the economy that teetered to near recession.

The pandemic has also resulted either in redundancies and salary reductions which has a negative impact on people’s savings.

The government, which owns shares in some of the companies will be among the biggest gainers.

Safaricom #ticker:SCOM announced a surprise Sh0.45 per share dividend payout, prompting investors to scramble for their shares pushing the value of the company stocks to an all-time high of Sh38.50 and the paper value of the telco to Sh1.5 trillion.

Safaricom’s dividend announcement was a surprise to the market, given that the firm ordinarily does not pay interim dividends at the half year stage.

“The surprise dividend announcement at Safaricom and we have seen East African Breweries Limited #ticker:EABL rally over the past two weeks that has sort of lifted the market. I think the market is picking up success stories and running with it,” said Eric Musau, head of research at Standard Investment Bank.

Initially the market expected Safaricom to face a challenge after net profit in the half year ended September dropped six percent to Sh33 billion due to removal of fees on M-Pesa transactions of up to Sh1,000.

Despite the resumption of M-Pesa charges, the telcoms operator was forced to cut fees for low value M-Pesa transaction fees by up to 45 per cent.

It now costs Sh6 to send between Sh101 and Sh500, down from Sh11. Transactions of between Sh1,501 and Sh2,500 cost Sh32 down from Sh41.

The telco is hoping to rely on volumes to cover for the low earnings from fees after first-half earnings dropped six percent to Sh33.07 billion, mainly hit by a Sh6.08 billion or 14.5percent decline in M-Pesa revenue.

The telco has a policy of paying out at least 80 percent of its full year net income as dividends, but on two occasions in 2016 and 2019 went further and paid out special dividends from its large cash pile.

The National Treasury will bank a Sh6.3 billion gross payout for its 35 percent stake in the telco, while multinationals Vodacom Group Limited and Vodafone Group Plc will share Sh7.2 billion for their combined 40 percent interest.

This will leave Sh4.5 billion to be shared out by the firm’s remaining retail and institutional shareholders, a tidy sum that has triggered the rush for the shares.

Electricity generation firm KenGen #ticker:KEGN announced it will pay its shareholders Sh1.9 billion after net profit jumped 133 per cent to Sh18.3 billion for the year ending June 2020 on the large tax saving and cheaper electricity sales following the completion of Olkaria V geothermal power plant.

KenGen will reward its shareholders by increasing dividend per share to Sh0.3, up from Sh0.25 last year.

The National Treasury will get about Sh1.3 billion for its 70 per cent stake at KenGen while the rest will go to private shareholders who own 30 per cent.

In the financial year ended June 2019, KenGen paid the government Sh1.15 billion as dividend.

KenGen said electricity demand was partly affected at the second half of the year owing to the restriction of movement, as part of measures to stop the spread of coronavirus.

However, demand picked up following the reopening of the economy to peak at 1966 megawatts (MW) on December 11 surpassing demand levels of 1926 MW seen before the pandemic.

Insurance companies which had expected a sharp jump in medical claims, cancellations and late remittance of premiums were surprised when Kenyans shied away from hospitals. This led to medical insurers posting their highest-ever underwriting profit in the nine months to September 2020.

Latest data by the Insurance Regulatory Authority (IRA) shows that medical insurance firms made Sh1.368 billion in underwriting profit over the nine-month period— a record performance for the firms which have over the years posted losses.

As a result, insurance companies have doubled the money set aside for dividends from Sh1.7 billion in 2019 to Sh3.3 billion as at September 2020, according to IRA data.

And as Savings and cooperative societies (Saccos) begin holding their rounds of annual general meetings, they have started rewarding members.

Sheria Sacco, which held its annual general meeting last week, voted to reward its members with 8.5 per cent interest on deposits to pay Sh363.5 million up from Sh332 million and a 16 per cent on their stake rising their payout to Sh59.5 million up from Sh54.7 million.

Sheria Sacco chairman Patrick Kiage said that although the sacco experienced disruptions their digital presence allowed them to continue operations and sustain revenues and effect cost cutting measure.

“Technology was key in delivering our results, our Fosa business went on uninterrupted because we continued transacting over mobile.

“I think the businesses that will be successful and thriving will be those who invested in technology, judge Kiage said.

He said despite the challenging year, his members were still able to save more growing deposits by 11.4 per cent from Sh4.3 billion in 2019 to Sh4.8 billion while loans grew to Sh5.744 Billion from Sh5.365 billion in 2019.

Banks are some of the biggest dividend payers with top nine banks having paid Sh47 billion in 2019 before the pandemic struck.

But as the impact of the pandemic became apparent, lenders led by NCBA #ticker:NCBA were the first to freeze payout stating they needed to preserve cash.

Then banking regulator the Central Bank of Kenya also issued a directive limiting dividend payout without its direct approval.

But it was the poor results announced at the end of the third quarter that gave the clearest indication that bank owners will miss out on the Corona divided party.

An unprecedented six of the 11 Nairobi Securities Exchange #ticker:NSE (NSE)-listed banks have warned that their profits will fall by more than a quarter—painting a bleak dividends outlook.

Most of the lenders, including Standard Chartered Bank Kenya #ticker:SCBK, Absa Kenya #ticker:ABSA, Cooperative Bank of Kenya #ticker:COOP, DTB #ticker:DTK, I&M Holdings #ticker:I&M and NCBA, have all issued profit warnings.

KCB #ticker:KCB, Equity #ticker:EQTY, Cooperative Bank, Absa, Stanbic #ticker:SBIC, DTB, Standard Chartered Bank of Kenya, NCBA and I&M saw a combined 29.2 percent or Sh23.36 billion decline in profitability in the nine months to September.