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Dividend boom is here as banks turn the corner on Covid woes

FINANCIAL STANDARD
By Patrick Alushula | Mar 22nd 2022 | 6 min read
By Patrick Alushula | March 22nd 2022
FINANCIAL STANDARD

Investors and analysts, during the peak of Covid-19 infections, did not expect payouts to snap back quickly to 2019 levels. [File, Standard]

Kariuki Ngari, the chief executive of Standard Chartered Bank of Kenya, says he does not need to “hold anything in excess” like in 2020 when Covid-19 disruptions convinced him to conserve cash.

At the time, Stanchart’s net profit for the year had declined by a third, prompting the board to slash dividends from the 2019 level of Sh20 per share to Sh12.50.

Three months later, Mr Ngari had to come back to investors with more bad news; the board had cut the dividend further to Sh10.50 to preserve cash.

But not this time around. StanChart Kenya investors will get Sh7.18 billion in dividends after the lender raised the payout on the back of a five-year record high in profits.

The lender, which paid Sh5 per share as an interim dividend, is set to give investors Sh14 per share come May. The total payout beats the previous one of Sh3.97 billion.

“The board is very clear that we want to make sure the business will retain enough capital, and we don’t need to hold anything in excess. When we don’t need the capital, we give it back to shareholders, and that remains,” says Mr Ngari.

Stanchart’s move is replicated across Kenya’s banking sector as the deadline for declaring the 2021 earnings closes on Thursday next week.

The move signals the end of a sudden cut or drought in payouts experienced in 2020 from a sector that had for years been hailed as a consistent dividend-payer.

Banks that had cut or frozen payouts, including Stanchart, KCB, Equity and Absa, are either increasing or reviving payouts, while those that maintained them in the pandemic — such as the Co-operative Bank of Kenya (Co-op Bank) — are expected to continue.

Co-op Bank, which saw a 53 per cent jump in net profit to Sh16.5 billion, has maintained payout at Sh1 per share, totalling Sh5.86 billion.

The lender braved the Covid-19 disruptions to maintain the same level of payouts in 2020 when its tier I peers opted for cuts and freezes to preserve capital.

“The board of directors of Co-op Bank made the bold decision to sustain the same level of dividend to shareholders even during the Covid-19 crisis when many other banks and listed companies decided to withhold dividends,” said Chief Executive Gideon Muriuki.

Mr Muriuki said the decision was informed by the awareness that the payout offered a critical lifeline to the over 15 million-member cooperative movement, whose livelihoods “would have been severely impaired had the dividend been withheld.”

Co-op’s long-standing shareholders, especially Co-op Holdings Co-operative Society, with a 64.56 per cent stake, recouped their entire initial investment in 2019 and continue to receive a return.

Investors and analysts, during the peak of Covid-19 infections, did not expect payouts to snap back quickly to 2019 levels.

But a sustained vaccination drive, falling infections, lifting of restrictions and improving loan repayments have created a perfect combination for lenders to pay dividends.

With Central Bank of Kenya (CBK) data showing that the industry’s pre-tax profits for 2021 rose 72.7 per cent to a record Sh194.8 billion, investors will be seeking more than just a return to pre-pandemic dividends.

For instance, KCB Group has tripled its dividend on the back of net profit rising 74.5 per cent to Sh34.2 billion.

The lender had paid Sh1 per share, or a total of Sh3.21 billion, on the 2020 results but is now set to pay Sh3 per share, totalling Sh9.64 billion.

The improved payout, which is Sh0.5 per share shy of the pre-pandemic level, is despite the current environment, which chief financial officer Lawrence Kimathi says still requires caution.

Globally, Mr Kimathi says, there are geopolitical issues such as Russia’s invasion of Ukraine that are causing “significant headwinds that we see coming our way.”

On the local scene, elections are set for August, and the lender also requires money to fund growth, with its eyes on the DR Congo.

Stanbic Holdings, which was the first to declare 2021 results, more than doubled dividends after net profit grew 39 per cent. The Stanbic board raised dividend per share 2.4 times to Sh9 compared with Sh3.8 that was paid in the previous period.

The increased dividend per share will see shareholders pocket a total of Sh3.56 billion — an equivalent of 49.4 per cent of the Sh7.21 billion net earnings.

At Sh9 per share, shareholders will have surpassed the Sh7.05 per share paid out in 2019 to pocket the highest ever returns in the history of the lender.

Absa Kenya, which had paid Sh1.10 per share dividends amounting to Sh5.97 billion for the 2019 performance but withheld payout on 2020 results, has reopened payments.

The lender has declared Sh1.10 per share on the back of net profit jumping 2.61 times to hit Sh10.87 billion.

Absa froze dividends as 2020 net profits fell 44 per cent owing to Covid-19 disruptions that led to reduced business activities and heightened risk of loan defaults.

The lender told shareholders that the evolving operating environment forced it to take decisive actions towards capital and liquidity preservation.

“These decisions are paying off; our customer operations are resilient as we have seen improvements in quality of our credit book and strength of our balance sheet,” said Chief Executive Mr Jeremy Awori.

Other top tier lenders, including Equity Group and NCBA, are also expected to announce dividends going by their sentiments in December.

NCBA in October paid shareholders Sh0.75 per share, amounting to Sh1.24 billion as an interim dividend.

NCBA Chief Executive John Gachora in December said the momentum in business by the third quarter meant that “I don’t see the reason why the board will not recommend a dividend at the end of the year.”

For Equity Bank, which skipped payouts for 2019 and 2020 results, dividend payout for 2021 is almost guaranteed now.

The lender, whose nine-month profit had already raced past the Sh20.1 billion net profit for 2020, already passed a policy that obligates it to pay dividends of between 30 per cent and 50 per cent of net profits.

This means investors will expect at least Sh8.07 billion going by the lender’s nine-month net profit of Sh26.9 billion.

Equity’s last dividend payout was on the 2018 performance, with shareholders taking home Sh7.54 billion or 38 per cent of net profit.  This means the expected payout will exceed this level.

DTB, which froze payouts; and I&M, which reduced its distribution to shareholders for 2020 performance, all look set to inject money into shareholders’ pockets following continued recovery of their earnings.

Banks had to navigate a difficult period in 2020 characterised by mounting loan defaults and slow economic activities that set in after the first case on Covid-19 was reported in the country in March of that year.

The gradual easing of coronavirus control restrictions and eventual lifting of nearly all curbs has triggered sustained economic recovery. 

The current mood is different from 2020 when an unprecedented six of the 11 Nairobi Securities Exchange-listed banks warned that their profits would fall by more than a quarter.

Away from banking, firms such as British American Tobacco (BAT) Kenya and East African Breweries Ltd (EABL) are also set to resume paying dividends.

EABL has returned to paying dividends, declaring an interim payout of Sh3.7 per share, or an aggregate of Sh2.96 billion, on the back of half-year results more than doubling to Sh8.7 billion in the period ended December 31, 2021.

The firm had suspended dividends after the closure of bars sank its earnings to the lowest levels in six years.

BAT in February proposed a dividend of Sh50 per share after its net profit rose by 18 per cent for the year ended December 31, 2021.

The final payout added to an interim dividend of Sh3.50, bringing total distribution to Sh53.50 per share compared with Sh45 per share in the previous year.

Safaricom, on the other hand, announced a final dividend of Sh0.64 per share, amounting to Sh25.6 billion, with payment expected by next week Thursday.

Car & General announced a Sh3.20 per share dividend payout, amounting to Sh128.33 million—the highest distribution in the firm’s history.

The payout, which is four times the previous one of Sh32.08 million, is to be made by Thursday alongside a share bonus of one share for every one held.  

Sasini, which had in 2020 frozen dividends, in mid-January announced a dividend of Sh0.50 per share and paid its investors Sh114 million last week. It had paid a similar amount as interim dividend last year to match 2018 payout.

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