George Williamson House in Nairobi. Analysts link Williamson’s record dividend payout to increasing profitability of tea-growing companies and its sale of Williamson House in Upper Hill. File
Williamson Tea has declared a record Sh50 per share interim dividend payment, increasing by nearly four times the cash payout to investors last year.
The payment, which totals about Sh437 million, comes after the listed agricultural firm sold its former headquarters building in Nairobi for an estimated half a billion shillings.
Last year the company paid a total dividend of Sh15 per share, up from Sh6.25 in 2010 and four shillings in 2009.
“The board of directors of Williamson Tea Kenya has declared an interim dividend of Sh50 per share in respect of the year ending March 31 2012,” read a statement from the company.
The Sh7.25 it paid out in 1998 had been the highest in the company’s history since it was listed at the Nairobi Securities Exchange in 1972. It was not immediately possible to establish if the huge dividend payout was linked to the disposal of the George Williamson Building along Ngong Road.
Our efforts to reach Allan CarMichael, the firm’s chief executive, were unsuccessful as he was said to be out of office.
Gilbert Masati, the company secretary, could neither confirm nor deny a link between the disposal and the payout.
The tea grower, majority owned by Ngong Holdings of England, has maintained a low dividend payout historically, lifting its cash reserves to more than Sh4.5 billion as at September last year.
Aly Khan Satchu, a shareholder of the company who spoke to Business Daily last year following sale of the building, had said investors expected to receive a special dividend after the disposal of Williamson House.
The agricultural firm owned a 50 per cent stake in Williamson House, which it sold to Lion of Kenya Insurance in a transaction that was estimated at Sh450 million.
“This is a record dividend payout for Williamson Tea, it could be related to the sale of the building,” said George Bodo, an investments analyst at ApexAfrica Capital. It moved only 200 shares in yesterday’s trading at a constant price of Sh255 each.
“We think part of the dividend could include a special one-off gain from the sale of its head office during the year,” said analysts at Standard Investment Bank in a note to investors. Williamson Tea’s associate company, Kapchorua Tea, gained 9.7 in yesterday’s trading.
Mr Bodo said the company’s dividend payout ratio had lagged behind the “market threshold” of 45 per cent between 2009 and 2011; a harvest period for shareholders when most listed firms paid high dividends out of equally fat earnings.
In 2011 for instance, Williamson Tea paid out a Sh15 dividend from its earnings per share of Sh97.45, translating to a 15.4 per cent payout against the 24 per cent average amongst its peers in the agricultural segment.
ApexAfrica Capital views this dividend payout as “unsustainable” because of the lucrative opportunities that exist in lending to the commercial banks through cash deposits and the State by investing in government securities.
“Sitting on huge reserves, they will still need cash in this era of high interest rates; so in effect, this kind of payout is quite unsustainable,” Mr Bodo said.
Mr Satchu, a portfolio analyst at Rich Management, also attributed the dividend payout to the increasing profitability of tea growing companies.
“The payout is a function of two factors; absolute sweet spot in which tea farmers finding themselves in where prices have entered a new normal and the proceeds from the sale of Williamson House,” said Mr Satchu.
Mr Satchu’s Rich Management owns about 1.7 per cent in the tea grower.
He added that Williamson Tea, like the three other listed tea growers, were likely to embrace a more aggressive dividend payout because they, unlike small start up firms would not need to build further capital reserves.
“The huge cash reserves held by tea growers has created steeply undervalued shares but this payout will be the catalyst for the entire sector to be re-rated,” he said.
