Top NSE investors rake in millions from bank stocks

Equity Group’s chief executive, James Mwangi, tops the list of 15 individual investors who are set to pocket Sh1.4 billion in dividends from Nairobi Securities Exchange-listed banks.

The earnings are based on interim and final dividends — after withholding taxes — that KCB, Equity, Barclays, CfC Stanbic, NIC, DTB and Co-op Banks have announced for 2015.

Mr Mwangi’s dividend take-home is the largest at Sh466 million or a third of the combined dividends, followed by the Bablas, the Mombasa-based billionaire family, who are taking home Sh204.8 million.

The family of the late Philip Ndegwa are third in the pecking order with Sh196.3 million followed by Andrew Kimani (Sh166.1 million), former KCB director Sunil Shah (Sh86.9 million) and Co-op Bank chief executive Gideon Muriuki (Sh76 million).

Mr Mwangi’s dividend payout of Sh466 million is based on his 6.5 per cent stake in Equity Bank, which reported the second-largest net profit of Sh17.3 billion in the year ended December 2015. His ownership of the bank includes a 1.6 per cent stake that his wife Jane Njuguna holds.

Equity raised its dividend payout 11.1 per cent to Sh2 per share compared to the Sh1.8 per share it declared the previous year.

READ: Equity Bank lifts dividend despite flat profit growth

The Bablas’ take-home is mainly from their interests in KCB and Equity, Kenya’s two largest banks, where they have been accumulating stocks to stand among the largest individual investors.

The family, led by billionaire philanthropist Kanaksinh Karsandas Babla, will get most of their dividend (Sh180.5 million) from KCB in a cash-and-stock payout.

New shares

KCB has announced that it will pay part of the dividend — which is unchanged at Sh2 per share — by issuing new shares whose aggregate number and pricing is to be disclosed later.

Payment of dividends through issuing of new shares, a process technically known as scrip dividend, is seen as representing the bank’s intention to preserve cash to finance its expansion plans.

The Ndegwa family’s dividend of Sh196.3 million is derived from their ownership of a 25 per cent stake in NIC Bank, which raised its total dividend payout to Sh1.25 per share from the previous Sh1 per share.

NIC has one of the lowest dividend payouts among publicly traded banks because it relies on the retained profits and rights issues to fund growth.

“Management does not anticipate coming to the market for additional capital in the next five years as it focuses on controlled growth as well as low dividend payout,” Standard Investment Bank (SIB) said of NIC’s dividend policy.

“NIC Bank’s five-year average dividend payout of 13.5 per cent is one of the lowest in the industry.”

Mr Kimani’s dividend of Sh166.1 million arises from his 2.3 per cent interest in Equity, which has proposed the largest total dividend payout of Sh7.5 billion.

The earning by individuals of hundreds of millions of shillings — amounts that dwarf the annual profits of some listed firms — is testament to the power of concentrated investment 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.

Mr Shah, a former KCB director, is set to earn Sh86.9 million for his 1.5 per cent stake in the country’s biggest bank while Mr Muriuki’s dividend of Sh76 million is based on his 2.05 per cent stake in Co-op Bank.

READ: KCB reports Sh19bn profit despite Sh6bn South Sudan hit

Mr Muriuki’s portfolio ranks among the most profitable, his annual dividend income now standing at more than the original Sh68 million investment he made in acquiring the shares currently worth Sh2 billion.

Leah Muguku, a relative of the late businessman Nelson Muguku, will receive Sh62.3 million for the 0.8 per cent stake she inherited in Equity.

The divestiture

The Mugukus have sold the majority of the shares the patriarch held in the bank, earning billions of shilling from the divestiture.

Simon Thuo, another long-term investor in Equity, is slated to earn Sh49.4 million for his 0.7 per cent interest in the lender while Franklin Ndii will pocket Sh38 million for his 0.53 per cent interest ahead of the bank’s chairman Peter Munga who stands to earn Sh29.2 million for his 0.4 per cent per cent stake.

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

Benson Wairegi, the chief executive of insurance firm Britam, is the next big earner, with his take-home of Sh17.2 million for the 0.24 per cent stake he holds in Equity.

He is followed by James Kimani, with Sh16.9 million for his 0.24 per cent stake in the bank.

Billionaire investor Jeremiah Kiereini will earn Sh11.6 million for his 0.5 per cent interest in CFC Stanbic Holdings.

This is one of Mr Kiereini’s few investments at the NSE where his presence has shrunk from a mix of corporate takeovers and share sales after he ran into trouble with the Capital Markets Authority (CMA).

Baloobhai Patel, another billionaire investor, is expecting Sh9.4 million from his minority interests in Barclays and DTB. Mr Patel has the bulk of his net worth in listed firms (in excess of Sh4 billion) outside banking stocks.

Duncan Ndegwa is expecting Sh5.9 million for his 0.8 per cent interest in NIC Bank.

Wealth machine

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

This is because nearly all 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.

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, indicating that it does not need extra cash to run its operations.