Worried about the arbitrary approach to listed firms’ dividend declaration, capital market shareholders are seeking regulatory approval, mandating quoted companies, especially top firms by market capitalisation to submit statement of dividend policy and make it public.
Dividend policy is the set of guidelines a company uses to decide how much of its earnings it will pay out to shareholders. It is a financial decision that refers to the proportion of the firm’s earnings to be paid out to the shareholders
The shareholders, who spoke with The Guardian, argued that dividend should be distributed from the percentage of earnings made by listed firms’ at the end of each financial year.
Regrettably, they noted that many companies on the Exchange declare dividend arbitrarily without considering what is actually due for investors from the earnings in accordance with the corporate performance.
They further noted that under mandatory disclosure, all companies will have to clearly outline their dividend distribution policy, and will be forced to explain reasons for any deviation from the stated policy. According to them, Nigerian retail investors have suffered untold hardship and left to their own fate by listed companies that have failed to declare dividend over the years.
Although in the last two years, Nigeria’s equity market had suffered a setback in terms of performance as a result of global and domestic economic transition that influenced the market negatively. Consequently, economic indices continued to fall due to unclear economic blue print of the government that failed to redirect the whole system.
The earning power of many companies on the exchange have been affected by this static economy, as citizens and investors do not know the direction of government’s policy as statements are not action plans.
Even in the face of the macro economic challenges bedeviling the economy, shareholders maintained that the key to any successful portfolio is stable growth, and earning additional income from interim or full year dividends that give investors the flexibility to earn some cash for reinvestment, or to meet their personal needs.
Investors also described dividend policy as being relevant, especially for a country that is interested in rapid and sustained economic growth, noting that it influences the decision of both local and foreign investors
Specifically, the President, Renaissance Shareholders Association, Ambassador Olufemi Timothy, while criticising that the dividend policy have received little attention in developing countries such as Nigeria, noted that companies are declaring dividend arbitrarily without considering what is actually due to investors in accordance with the corporate performance.
He explained that if quoted companies were compelled to declare a percentage of their profit as dividend and make it consistent, it would enhance their performance, and sustain investors’ confidence in the market.
He pointed out that such dividend policy would help investors to ascertain how strong a company is in terms of its fundamentals as well as enhance investment decision. Timothy added that if such statement is made public, it would ensure the integrity of the board in giving what is due to investors as well as compel them to embark on businesses that would enhance profitability in order to fulfill the mandate.
An independent investor, Amaechi Egbo said: “Now, under mandatory disclosure, all companies will have to clearly outline their dividend distribution policy. This will bring an element of predictability for investors as to what they can expect, going forward.
“Companies will be forced to explain reasons for any deviation from the stated dividend policy. While a company’s track record of dividend payout can give investors some idea about the company’s approach to this, as a formally articulated policy provides greater clarity and enforces discipline among companies.”
The President, Constance Shareholders Association, Shaehu Mikail, argued that capital market activities will record high level of transparency and accountability if the Securities and Exchange Commission (SEC), compelled firms’ to make their dividend policy public.
“Here in Nigeria, most of the quoted companies do not even have a dividend and our regulators do not care about it even when shareholders ask questions during the yearly meetings, when it comes to dividend policy, they will never comment on it. There ought to be a standard way of declaring dividend based on their earnings.