Gloomy picture ahead for dividends

KATHMANDU, MAR 3: 

With prospects of cash dividends getting gloomier for the coming year, investors have set their sights on bonus shares.

Of the 25 banks listed in the share market, including the newly upgraded Sanima Bank, some 19 banks have announced dividends in either stocks or cash. The average dividend distributed by the banks amounted to 36.9 per cent which is 29 per cent more than the amount distributed in the previous fiscal year. 

“During a bearish period, dividends are the major attraction for investors so it would be highly disappointing if dividends too contract,” said general secretary of Nepal Stock Investors’ Association Prakash Rajoria.

The growing level of Non Performing Assets (NPAs) of commercial banks coupled with increasing loan loss provisioning with more and more loans going bad, investors are not hopeful about getting good dividends in the coming year. 

In the first half of the current fiscal year, the NPA level of the banks has gone up to 3.23 per cent and provisioning for probable loan loss has also gone up by 25.5 per cent. 

At present, when share prices are at a low, bonus shares of commercial banks are coveted by investors. “Bonus shares become more valuable than cash dividends once the market starts to rise, so it is favourable for the banks and investors alike to distribute stock dividends,” he added.

Moreover, governor of NRB Yubaraj Khatiwada recently advised the banks to reduce the distribution of cash dividends and instead opt for bonus shares to strengthen their capital base. Banks need to increase their paid up capital to Rs 2 billion by the end of next fiscal year so capitalising on bonus shares is prudent for the banks too.

Among the 19 listed banks that have distributed dividends, only nine distributed stock dividends. “Despite the possibility of fewer dividends in the coming days, we are hopeful that the banks’ profits will improve in the remaining period as the economy as a whole is improving,” Rajoria pointed out, citing the improved economic indicators in recent times.

Despite dividend announcements, the share market’s benchmark index plunged as low as 311 points in the last few months. It has hovered over 320 points for the last three months despite announcements of dividends made by banks who are dominant players in the secondary market.

During a downward trend, investors look for underlying benefits like cash dividends and bonus shares instead of short term returns. Even though the short term return from share investment is non existent, handsome dividends can make up for any losses, according to investors.

Dividends are one of the most important features that a non-speculative investor regards before purchasing a share which also reduces volatility. 

The handsome dividend declaration by real sector companies also could not bring much needed cheer at the stock market, though they have less hold on the market. Unilever Nepal and Chilime Hydropower declared Rs 590 per unit share, and 40 per cent stock and 30 per cent cash dividends, respectively.

Source: THT