BusinessEquity Market: Non-Dividend-Paying Firms Drop to 51 in 4 Years

Equity Market: Non-Dividend-Paying Firms Drop to 51 in 4 Years

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January 02, (THEWILL) – The number of quoted firms on the Nigerian Exchange (NGX) that have failed to pay dividends in at least five years dropped from 84 in 2017 to 51 in 2021. This represents a 60.7 percent decrease. In 2012, the figure was 41. While the Exchange had a total of 156 quoted firms as of December 2021, 171 companies were listed on the daily official list of the Nigerian bourse as of March 2017 when the previous report was compiled. This implies that the number of listed companies dropped by 8.7 percent in four years.

Shareholders in the 51 affected companies did not record capital appreciation through rights issues, either. Thus, they have their assets stuck in firms that are either dormant, not making a profit, or making a profit but would not declare dividends. A check showed that such firms cut across sectors with some having never paid dividends since their inception decades ago.

Daar Communications Plc, in the consumer goods sector, has not paid dividends since it was listed in 2008 and has been reporting losses since 2013. Champion Breweries, in the fast-moving consumer goods sector, last paid dividends in 1986. Premium Prints Plc last paid dividends in 2001 (20 years ago). Premier Paints Plc, Livestock Feeds Plc, Union Dicon Plc and Juli Plc last paid dividends in 1999.

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According to a Premium Times report, John Holt Plc last paid dividends in 2005, Royal Exchange Insurance Plc in 2006, Staco Plc in 2008, Standard Alliance Plc in 2009, Morrisons Plc in 2009, FTN Cocoa Plc in 2010 and Guinea Insurance Plc in 2010. FTN Cocoa Plc has been posting losses since 2011 and Royal Exchange Insurance Plc since 2015. On their part, Abbey Building Society Plc, EkoCorp Plc, International Energy Insurance (IEI) Plc and Omatek Plc have not paid dividends since 2011. This is the same with Chellarams Plc, Ellah Lakes Plc, NCR Plc, RT Briscoe Plc, Tantalisers Plc and Vanleer Plc (formerly Greif) who have not paid dividends since 2012.

Meanwhile, a number of firms have failed to pay dividends even when they recorded a profit. Studio Press Plc, which has been reporting profit since 2016, has not paid dividends since 1995, while Sovereign Trust Insurance Plc, which declared a profit since 2012, has not paid dividends since 2011. Arbico Plc has declared a profit five times since 2015, but has not paid dividends since 1998. Afromedia has declared a profit since its inception in 2017 but has never paid dividends.

The national chairman, Trusted Shareholders Association of Nigeria, Alhaji Mukhtar Mukhtar, has accused most non-dividend-paying companies of fleecing unsuspecting shareholders and resorting to fraudulent practices to unjustly enrich themselves. He expressed concern that the regulatory authorities look the other way, thereby subtly condoning the excesses of the said companies, which are all enlisted on the Exchange. According to him, a well-organised system would not tolerate such practices that create loopholes and promote corporate governance deficit.

He argued that any company that consistently fails to pay dividends for 35 years is not worth investing in as the directors and management of such companies are most likely exploiting the loopholes in the system to swindle the unsuspecting public.

He observed that such loopholes exist and the failure on the part of the regulators to sanction erring firms remains the bane of the Nigerian investment window. He recalled that such unhealthy practices thrived during the period of boom in the equity market and contributed to the crash that produced the dormant equities that have stopped generating dividends.

“I remember that in the booming years of our capital market before the 2008 crash, moribund or bankrupt companies continued trading their shares on the floor of the NSE with booming share prices thereby shortchanging the uninformed public.

“People, especially directors, stockbrokers and insiders made disproportionate exploits through the trading of moribund companies which the system unfortunately condoned. This is regulatory abuse, dereliction of duty and connivance of the highest order,” Mukhtar told THEWILL.

The shareholders’ group boss argued further that non-dividend-paying companies should not be listed on the equity market, even though they report profit sometimes and might extend the capital appreciation window to investors through the creation of rights issues. He maintained that dividend payment is part of the fundamentals of companies that encourage investors to patronize such firms.

“These companies that have failed to pay dividends to shareholders have no business being in the capital market. I understand such companies may still create undue value to holders of their shares through share price appreciation whereby they can sell to make high profit. “But this in itself is abuse and fraud. How can share prices of companies which never paid dividends appreciate without abuse of process and fraud?

“Dividend payouts are part of the strong fundamentals of companies which encourage investors to invest with its attendant share price appreciation. Anything short of this must be fraudulent and the swindling of the unsuspecting public.”

Mukhtar suggested that regulators should be ready to wield the big stick against erring companies and, if need be, prosecute their directors and the management team.

The Nigerian Exchange earlier this year delisted some companies for failing to comply with specific regulatory requirements. Most of the affected firms have not paid dividends in years.

In a statement signed by the NGX Regulation company secretary, Eseose Okiwelu, the regulatory body disclosed that four of the affected companies, referred to as issuers, had been approved for delisting, effective June 14, 2021. These are Evans Medical Plc, Nigerian-German Chemicals Plc, Roads Nigeria Plc and Unic Diversified Holdings Plc. The process of delisting another issuer, Aso Savings & Loans Plc, is ongoing.

An investigation by THEWILL showed that some of the companies were affected by the downturn in the economy, while others were plagued by mismanagement. The affected companies, like their counterparts on the healthy side of the market, suffered the stings of inflation, devaluation of the local currency and high operating costs. Some of them have not held any annual general meeting nor filed returns with the Exchange in 12 years, a development industry experts described as abnormal.

The central effect of the development is the possible loss of investors’ assets. While the funds cannot be deemed lost as the companies are still going concerns and not liquidated, having such assets ‘trapped’ in dormant equities which do not yield value is as good as lost.

“It is a bad report that up to 51 companies have not paid dividends within the last 35 years. As an investor, I am very disappointed and hope that the board of these companies will turn around the misfortune and change the nonchalant attitude of non-dividend payment into one that rewards their investors who have painfully born this unhealthy development,” said Mrs Bisi Bakare, national co-ordinator, Pragmatic Shareholders Association of Nigeria.

The penalty for default in timely disclosure of financial performance is punitive. The rule states that: “Any late submission of accounts shall attract a fine of One hundred thousand Naira (N100,000) per week from the due date until the date of submission. A listed company which contravenes any of the provisions of the Listing Rules and General Understanding and fails to pay the penalty imposed on it for such contravention on or before the due date shall be liable to a further fine of three hundred thousand naira (N300,000) in addition to twenty-five thousand naira (N25,000) per day for the period the violation continues.”

About the Author

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Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

Sam Diala, THEWILLhttps://thewillnews.com
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.

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