A total eight companies are to pay their shareholders a combined N147.95 billion in interim dividend as corporate earnings rebounded in the second quarter of 2021 on the back of gradual economic recovery.
Investors are attracted to the stock of an entity that has a steady dividend policy because it signals good financial health, and economists believe the value of a firm is the future discounted cash flows.
Seplat Corporation Development Company, the largest upstream oil and gas firm in Nigeria, announced the highest interim dividend of 2.50 cents N10.28, which translates to total value of N6.04 billion as the company reverted to the path of profitability in the second quarter, thanks to a rebound in crude oil price following the relaxation of lockdown measures and successful rollout of vaccines.
However, MTN Nigeria, the largest telecom company by market capitalization in the country, recorded a 30 percent year on year increase in interim dividend to N4.55, which represents a payout of 65 percent, the highest among NGX 30 firms.
The dividend payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.
Banks have always adopted a conservative dividend policy because the regulator puts a ceiling on payout to ensure they have a strong capital buffer to withstand macroeconomic shocks.
Zenith Bank, Access Bank, and United Bank for Africa have announced interim dividends of N0.30, N0.30, N0.20, which translates to total value of N31.39 billion, N35.54 billion, and N34.20 billion respectively.
It is noteworthy that the 30 most liquid and capitalised companies otherwise known as NGX 30 firms collectively grew profit by 33.10 percent to N1.07 trillion in the second quarter of 2021, from N756.63 billion a year earlier according to data gathered by MoneyCentral.
In short, 66.67 percent of firms that have reported half-year results have seen earnings growth, and analysts are optimistic that they will maintain the upward trajectory all through the end of the year.
The Nigerian economy expanded by 5.01 percent year on year in the second quarter of 2021, according to recent data from the National Bureau of Statistics (NBS).
The economic outlook is positive and there are expectations of improved liquidity in the foreign exchange market as the government successfully raised $4 billion in Euro bonds that was oversubscribed by investors, and that should take the external reserve to $40 billion.
Inflation has also maintained a downward trend in recent months while yields are expected to be lower than their peak levels seen in the second quarter (Q2-21).
Nigeria 10-year government bond has a 12.019 percent yield as of October 1, 2o21, according to World Government Bonds data.
The Nigeria 10 Years Government Bond reached a maximum yield of 15.856 percent (4 December 2018) and a minimum yield of 4.048 percent (3 November 2020).
NGX All Share Index gained 1.59 percent on Thursday, being a day before Independence Day celebration, but it has a negative year to date return of 0.96 percent.
Analysts are optimistic that some companies will increase dividends to shareholders as the current economic recovery (buoyed by rebound in crude oil price) is strengthening revenue and cash flow position of firms.
But they caveat that sustained and consistent earnings growth will be predicated on the government’s ability to formulate transformation policies capable of attracting foreign direct investment into the country and unlocking the potentials in the economy.
A total of N1.11 trillion of cash sits on the balance sheet of the largest firms, and that is 38.28 percent higher than 2020’s N808.94 billion, according to data gathered by MoneyCentral.
Analysts at Chapel Hill Denham have recommended that dividend focused investors buy Access, Stanbic, UBA, and GTCO, because of their steady strong earnings and consistent dividend policies.
“Considering that we are approaching the end of Q3-21, we also recommend that investors buy Airtel Africa, Nestlé, and NB as they always announce interim dividends post the publication of third-quarter results,” said the analysts.