Dividend payment and job creation

About one-third of the firms listed on the NSE have paid dividends worth N419.7bn for FY13. In this write-up, TELIAT SULE examines the sectors that paid the highest dividends as well as where jobs were created most in 2013.

Dividend payment is a signal that firms are doing well. It is a factor that some institutional and individual investors consider while selecting stocks for their portfolios. Other factors that influence the choice of stocks include price appreciation, future growth and ethical reasons.

Concerning dividend payment, 65 companies have lived up to that expectation in 2013 based on information gathered so far. For the financial year ended December 2013, shareholders who invested in the companies covered by this analysis will have every reason to trust their ingenuity as these companies have rewarded them with N419.7bn as dividends.

Dividend yield versus absolute dividend payment

Dividend yield is a measure of how much cash flow an investor receives from every naira he invests in equities. The average dividend yield for the 65 companies covered in the analysis was 4.6 percent.

By posting 12.3 percent as its dividend yield, the NPF Microfinance Bank, operating in the financial services sub-sector, became the overall best performing firm on the dividend yield parameter. It is followed by A.G Leventis, 11.7 percent; UBA Capital and African Prudential Registrars, 10.8 percent each; Sterling Bank,10.6 percent; Skye Bank, 9.1 percent; National Salt, 8.2 percent and Learn Africa, 8 percent. The least yield of 0.3 percent was posted by Presco plc.

Overall, our analysis shows that 30 companies surpassed the average market dividend yield of 4.6 percent. Fourteen of them are from the financial services sub-sector, representing 76 percent of the equities from that sector which featured in our analysis.

Apart from that, three stocks from the road transport/transport related services sub-sector beat the average dividend yield of the market. These are the ABC Transport (6.7 percent), NAHCO (6.2 percent) and Airline Services & Logistics (5.1 percent).

Berger Paints (7.8 percent), CCNN (6.2 percent) and Paints & Coatings Manufacturers (5.8 percent) from the building materials sub-sector also outperformed the average dividend yield of the market. The food products sub-sector having NASCON (8.2 percent) and Dangote Sugar (6.3 percent) are among the stocks on the list of out performers. Only one stock made it in the courier/freight, household durables, oil & gas, packaging/containers, publishing and real estate investment trust scheme(REITS) sub-sectors.

Cumulatively, the financial services (FS), building materials, food products and breweries sub-sectors took the shine off other sub-sectors on the main board of the Nigerian Stock Exchange (NSE). By paying the total amount of N186.9bn, firms in the FS sub-sector accounted for 45 percent of the dividends paid by the listed companies for the financial year ended December 31, 2013.

The firms categorised as FS include commercial banks (DMB), insurance, mortgage, microfinance banks, investment banks and registrars. Those firms that paid the most amounts as dividends include Zenith Bank, GT Bank, FBN Holdings and UBA. They collectively paid N147bn or 79 percent of the FS sectoral dividend pay-out to their shareholders.

Similarly, shareholders earned N131.97bn from the firms operating in the building materials sub-sector. However, not many companies are involved as Dangote Cement, one of the most capitalised stocks on the NSE, accounted for 90 percent, or N119.2bn of total dividend paid out by companies covered in its sector. The breweries and food products paid N34bn and N32bn respectively as dividend.

An analyst who pleaded anonymity not want her name in print attributed the performances of the firms in the FS, building materials and food products sub sectors to the rise in the purchasing power of Nigerians, which is partly due to the increasing number of people migrating into the middle class, higher budgetary allocations to infrastructure development and prudent management of resources by banks.

Furthermore, the nominal dividend per share paid by individual firms varies considerably. Nestle maintained the lead by paying N24 per share as the final dividend. And when added to N1.5 per share paid as interim dividend, it brings Nestlé’s corporate actions for 2013 to N25.5 per share.

Other notable companies include Mobil Oil, N6; Nigerian Breweries, N4.5; Forte Oil, N4 and Lafarge Cement Wapco, N3.30. Julius Berger Nigeria (JBN) gave a bonus of one for 10 in addition to the N2.7 declared as dividend per share. That translates to additional 120m new shares. At today’s market price, the management of JBN has further empowered shareholders with additional N8.28bn.

To be active productively, a firm needs adequate capital. This brings in the relevance of capital importation and the credit to the private sector. The FS and sectors related to it have been the highest destination of capital imported into Nigeria for sometimes now.

On the contrary, the rate at which FS granted credit to the private was a miniature when juxtaposed with the extent capital was imported into the sector within the period.

In other words, firms in FS sub-sector had greater access to capital to fund their businesses compared to those in other sectors, hence the better performance companies in that sub sector posted in 2013.

This is because capital importation increased by 274 percent to $21.32bn at the end of 2013 from $5.7bn in 2009. On the contrary, credit to the private sector rose by just 73 percent to N189.34m at the end of 2013 from N109.22m in 2009.

Furthermore, out of $21.32bn capital imported in 2013, $15.7bn or 73.48 percent went into shares. Also, $2.37bn or 11.14 percent ended up in financing; $913.6m or 4.29 percent into telecommunications, $671.8m or 3.15 percent into banking while $391m or 1.84 percent was invested in production and manufacturing. Ayo Teriba, CEO Economic Associates, attributed this scenario to the productivity of each of the aforementioned sectors.

“Banks and stock markets are not final investment destinations, as both would still channel the bulk of the funds to non-financial companies. Manufacturing accounts for only 6.6 percent of Nigeria’s rebased GDP, with crop production at 21.5 percent, trading at 16. 4 percent, oil at 15.6 percent, information & communication at 11 percent, and real estate at 7 percent, all contributing more than manufacturing to GDP.

“Logically, those sectors deserve to attract proportionately more funds than manufacturing as funding should support the size of production taking place in the different sectors,” he said.

Impact on job creation

Over 60 percent of the new jobs created in 2013 were in the educational sector. But comparing the FS and manufacturing in terms of job creation, the former outshined the latter in 2013. The FS created 50,306 new jobs compared with manufacturing sector’s 37,142 new jobs.

Seventy-eight percent of the FS jobs were created in Q1, 2013. The manufacturing sector created 35,283 new jobs between Q2 and Q4, 2013. That was 219 percent more that 11,065 new jobs created in the financial services sector during the same period.

Job creation in the manufacturing was championed by firms that produced food, beverage & tobacco products; textile, apparel & footwear as well as those that produce non-metallic goods. Sector-specific policies are definitely needed to enhance the ability of manufacturing firms to realise their potential and hence reward shareholders handsomely.