Investor dividends under pressure from Covid-19

The global Covid-19 pandemic has deepened pressure on shareholder dividends as companies move to hold onto the money they have earned in the last financial year in the wake of the uncertainty.

Companies are considering holding on to the cash to ensure they have enough reserves to carry out their businesses after the pandemic.

Several regulators around the world have suspended dividend distribution for 2019 and 2020 for banks until the end of June in order to boost capital and support lending during this period.

Analysts said regulators around the world are keen to ensure lenders enter this period with strong capital positions sufficient to accommodate any shocks.

Pressure to slice dividends is coming from varied sources. Both regional and European regulators have recently recommended that lenders pause dividends until October. Many companies in other sectors have also taken cue.

Listed Tier One lender NCBA #ticker:NCBA Tuesday became one of the first in Kenya to announce that it would withhold dividend payments to shareholders totalling Sh2.24 billion as more companies explore similar options to weather the financial turbulence caused by the deadly disease and to keep money for the future.

In a move that is likely to be closely watched by regulators and other lenders, NCBA said it would instead offer additional shares to shareholders in lieu of its final dividend for last year of Sh1.50 shillings per share due to the coronavirus crisis.

The bank will offer investors a bonus share for every 10 held, it said in a statement yesterday.

“The board has considered events that have taken place since the financial results were published, particularly the unprecedented Covid-19 pandemic and its devastating effects to the world and the Kenyan economy,” said the bank.

“This has led to a reconsideration of the board’s decision as to the type of return to offer the shareholders... the board will therefore be varying its proposal and recommending to the shareholders the payment of a stock dividend (bonus issue) and not a cash dividend.”

NCBA was set to pay the dividend to shareholders on its books on Thursday.

The additional 149.7 million shares are valued at Sh4.24 billion based on the NCBA share price Sh28.50 as at Monday. This is roughly double what would have been paid in the now-shelved cash dividend.

NCBA had recommended a final payout of Sh1.50 per share on top of an interim dividend of Sh0.25, bringing the total payout to Sh1.75. This was lower than the Sh2.09 that former CBA shareholders earned in 2018 ahead of the merger.

Analysts said Tuesday that NCBA’s decision signalled the huge threat that the Covid-19 pandemic poses to businesses even as more firms consider cost-cutting strategies.

Nation Media Group #ticker:NMG, which also operates in neighbouring Tanzania and Uganda, said there would be no final dividend and instead offered investors a bonus share issue of one for every 10 held.

The company said it will invest some of its cash reserves to develop new revenue streams from digital media as scope for growth in its print business narrows, and as it seeks to navigate through the Covid-19 pandemic.

The interim dividend of Sh1.50 per share, which had been issued earlier, will become the total dividend for the year, down from Sh5.00 per share a year earlier, the company said.

BOC Kenya 3ticker:BOC on Monday also announced that its directors did not recommend the payment of a final dividend for 2019. The company’s total dividend for 2019 was left at Sh2.35 per share that was paid as interim dividend in October last year.

Dividend payments are key to putting money in the pockets of small shareholders who require cash to meet personal expenses that ultimately boost demand in an economy where workers have complained of reduced cash flow.

Bonus issues are given to shareholders when companies are short of cash and shareholders expect a regular income. Firms low on cash may issue bonus shares rather than cash dividends as a method of providing income to shareholders.

“I don’t expect companies to continue paying dividends in the current environment,” said Churchill Ogutu, senior macro-economic research analyst at Genghis Capital.

Co-operative Bank #ticker:COOP announced last week that it will tomorrow pay Sh5.86 billion dividends ahead of its annual general meeting that was postponed due to Coronavirus.

In the United States, companies that accept federal bailouts or loans to survive the coronavirus crisis are barred from paying dividends in the near term, while regulators are calling on banks to preserve capital so they can keep lending to businesses and offer mortgage holidays to households.

In neighbouring Uganda, the Bank of Uganda has suspended bonus and dividend payments as it seeks to reserve enough capital to support the economy.

According to the regulator it was important that banks and such other firms defer the payment of dividends and bonuses to shore up their capital until further notice.