Investors shift to higher dividend payers
KATHMANDU, MAR 8:
Investors, unlike previous years, are gradually shifting their focus towards the hydropower sector as it has become more lucrative in terms of dividends compared to banks and financial institutions.
Due to the decreasing dividends being given by banks and financial sector as compared to previous years, investors are shifting their portfolio to other growing sectors like hydropower, according to market experts.
Out of the 25 listed commercial banks, some 20 banks paid cash or stock dividends from last year’s profit. The average dividend of the listed banks has declined to 31.96 per cent from last fiscal year (2010-11) profits, from 38.93 per cent a fiscal year ago.
Banks and financial institutions are not only dominant players occupying around 90 per cent of total traded shares but also considered high dividend payers. But the declining dividend percentage has forced investors to choose stocks that pay more dividends as it is the yardstick of a company’s prospects.
Yet, companies that do not pay dividends are not necessarily without profits. If a company thinks that its own growth opportunities are better than investment opportunities available to shareholders elsewhere, it should keep the profits and reinvest them into the business. On the other hand the companies, while much of their profits may be distributed as dividends, still need to retain enough cash to cushion market risks.
“The market itself has started to shift from banks and financial institutions to the hydropower sector,” according to share market analyst Rabindra Bhattarai. “Taking a cue from the trend, if the government gives a little policy push, the share market as a whole could start looking up.”
The manufacturing industries dominated the share market initially when Nepal Stock Exchange formally started transactions in 1994. The domination continued for about seven years till 2001, but the attraction started fading with the poor performances of the listed manufacturing companies. Investors then shifted to banks and financial institutions that started distributing higher returns.
At one point of time, investors used to queue for hours for shares of banks and financial institutions. But their focus seems to be shifting again and may be for better this time. The latest attraction seems hydropower companies that are paying handsome returns, though there are only four listed hydropower companies. Chilime Hydropower distributed a total of 70 per cent dividend including cash and stock, and Arun Valley distributed 15 per cent cash dividend from the profits of last fiscal year.
Securities Board of Nepal (Sebon) has amended the Securities Registration and Issuance Regulation – 2065 including mandatory primary issue by hydropower companies for the locals. “A company has to float a minimum of 30 per cent shares of its issued capital, unless otherwise directed by the company’s regulatory body,” according to the amendment. “Of the 30 per cent, five per cent has to be separated for the company’s staff; 10 per cent for locals and the remaining 15 per cent for the general public,” according to the regulation.
But chairman of Sebon Babu Ram Shrestha opined that any of the real sector companies can help boost the market, not only hydropower. “If more hydropower companies are listed not only the share market, the overall economy will get a boost,” he said, adding that energy is an engine to economic growth as it can attract more manufacturing industries apart from creating employment.
Currently, there are 25 listed banks, 63 development banks and 73 finance companies making a total of 162 listed banks and finance companies, which have around 90 per cent of the market share. But only 18 manufacturing industries are listed and out of them only three — Unilever, Bottlers Nepal and Bottlers Nepal (Terai) — are active players.
If the government can encourage hydropower companies to list in the market and mobilise small savings of common people in hydel projects it will not only boost the share market by diversifying it but also help in economic growth.
Source: THT
