Lagos – For many years many companies listed on the Nigerian Stock Exchange (NSE) have seen a significant reduction in their share value, leading to substantial losses on the part of the investing public.
Indeed the share prices of some of the companies fell so significantly that many of the stockholders wrote them off and took them off their record books.
Apart from suffering depreciation in their share prices, the companies whose shares are still retaining some value have not been able to significant dividend to their shareholders.
According to Mr. Ayo Balogun, who owns shares in many companies, non-payment of dividends has become a major issue among shareholders in the country.
He stated that of the shares he has in many companies suffered massive reduction in value.
He added that the companies still some measure of value have not paid dividend to him for many years.
The experience of Dayo Alade, a shareholder in many companies, is not different.
He told DAILY INDEPENDENT that he lost almost all his shares in the crisis that hit the Nigerian economy in 2008 and has refused to buy shares since then.
He disclosed that the companies in which he still has shares have not paid dividend to him over the years.
Gabriel Okezie also had the same story to tell. The businessman told DAILY INDEPENDENT that he spent millions of Naira to buy shares, saying that he lost most of them and has not bothered to keep records of the shares he owns.
Speaking on the issue, John Chukwu, the Managing Director of Cowry Assets, a stockbroking firm, said that the economy has to do well before a company can pay dividends to shareholders.
“There should be increase in productivity in the country. There are fundamentals of the economy that must be right in terms of interest rate, inflation rate and exchange rate”, he said.
He said that the rate of unemployment in the country is terrible; the high unemployment rate in the country is impacting negatively of the ability of companies in the country to sell their products.
According him, the quantity of unsold products is high, adding that when the companies are unable to sell their products; their level of profits will be reduced.
He stated that profits of companies come mainly from the sale of the products and diminished demand arising from low demand reduces ability of companies to make profits and this reduces power to give dividends to shareholders.
The Managing Director of Cowry Assets said declining power of Nigerian companies urged investor to continue to invest in under-priced stocks, adding that they should invest in companies that can pay dividends in spite of the harsh economic situation in the country.
According to the expert, the investing public should study the track records of the companies on the Nigerian Stock Exchange and invest in companies with strong fundamentals.
On the question of companies that make profit and refuse to pay dividends, Chukwu posited that such companies should take a critical look at their dividend policy, adding that companies have a duty to reward their investors and keep them happy. He said further that look at their working capital to ensure that it is of the right mix.
Speaking on whether shareholders of a company have the power to force a company that has refused to pay dividend to do so, he explained that it is the shareholders who determine a company should pay dividend or not, this, they do, he stated, through the people they appointed as directors of the board of the company.
Also speaking on the issue, Matthew Ogagavworia, a Lagos-based stockbroker, said one has to go beyond the figures to determine if a company is a position to pay dividend.
He stated that one needs to look at the dividend policy of the company and posed the question: “is the dividend policy in line with the investment policy?”
According to him, dividend policy of a company is determined by many factors, stated if a company is a growth company, and it will retain much of its earning instead of paying them out as dividends. It does this because it wants to reinvest for future growth. According to him, “If a company is a mature company, it will have an aggressive pay out dividend policy. You also have to look at the demands on the company and the mix of the shareholders of the company.
“The shareholders needs impact the dividend policy of a company and it could be an aggressive dividend policy or a moderate one.”
Other factors that affect the dividend payout by a company, Ogagavworia said are the cash flow of the company, adding that if a company has huge cash, it will pay dividend and if it has borrowed from financial institution, it will focus repaying the debt and pay less dividend.
The stockbroker argued that the general state of the economy affects the ability of companies to pay dividend to shareholders, adding that the business environment in the country is harsh and has diminished the capacity of Nigerian companies to pay dividends.
He said: “Many companies in the country need injection of capital; many of them are looking for the right opportunity to borrow funds and many of them are debtors to the banks. “
With that kind of situation, many of them will not be able to pay dividend to shareholders.
He added that shareholders could contribute to the dividend policy of a company at the annual general meetings where the dividend policy of the company is formulated.
According to him, “It is the call of the shareholders at the annual general meeting to increase or reduce dividend a company can pay in any given financial year.”
The post Why Nigerian Companies Are Not Paying Dividends –Stakeholders appeared first on Independent Newspapers Nigeria.
Source: Daily Independent
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