The big dividend drought at the Nairobi Securities Exchange
By Patrick Alushula
| May 24th 2022 | 7 min read
They ushered thousands of retail traders to the Nairobi Securities Exchange (NSE) with a promise of dividends and capital gains, but only a few companies have lived up to this promise.
And retail investors like Alois Chami, a vocal, seasoned and self-taught investor in listed firms, can only look back wistfully.
Mr Chami, 76, has watched popular brands such as Sameer Africa, Kenya Airways, Uchumi, East African Portland Cement, Mumias Sugar, Eveready, TransCentury, East African Cables and Kenya Power fall off the list of dividend payers.
Of the first stocks he bought in 1973, he says, only a few like East African Breweries Ltd (EABL) remind him of the good old days when paying dividends was rather the norm than the exception.
“There were years of growth, but now many giants of yesterday are falling. Unfortunately, there are not many new companies to replace them,” says Mr Chami.
His assessment rings right given that Safaricom, EABL and 10 banks - Absa, DTB, Equity, I&M, KCB, NCBA, Stanbic, Stanchart and Co-op Bank - make up 89 per cent of the Sh2.138 trillion held by over 60 companies on the NSE.
Erstwhile stable companies have run into their fair share of challenges, forcing them to drop dividends to survive even as the share prices on the Nairobi bourse erode shareholders’ wealth.
Tens of former big-time dividend payers on the NSE have imploded in recent years, sucking down billions of shillings in shareholder value. Shareholders in such firms are no longer longing for a return on their investment. Their only wish now is for their investment to return.
Income investors wondering how fast the dividend drought might end have waited even longer for any good news even as some of the firms exit the NSE.
The triggers of the downturn of the once-reliable dividend payers vary. But the pain is the same: no dividends for shareholders.
Some firms simply failed to evolve with the times, falling victim to the Kodak or Yahoo moment. Others have incompetent managers to blame.
Yet for others, they only have themselves to blame for flying too close to the sun. They took on massive risks such as debt-fuelled expansion that eventually came back to bite them.
The signs of collapse started with sharply falling share prices and stagnant dividend payments over a long period.
Investors missed the opportunity to jump from the sinking ships and some have blamed the regulator for not warning them. The dividend blow-up is now a mess they have to live with.
For many retail investors with small stakes, freebies like lunch, umbrellas, t-shirts and other items that companies distribute during Annual General Meetings (AGM) have become the only benefit.
But even these freebies have dried up, thanks to Covid-19 disruptions that gave companies the room to amend their internal laws to provide for virtual meetings.
About 30, or half of the firms whose shares are trading on the NSE, have failed to pay dividends on their performance for the last financial year.
Only a few firms can cite the Covid-19 disruptions, but a majority had dropped dividend payouts from their menu even before the virus hit the world and quickly morphed into an economic crisis.
Eaagads’ coffee berries may be still smooth, taut and shiny, but shareholders want more than just the attractive beans. They want a return. Yet the firm, which was established in 1946 as a grower of coffee and listed on the NSE in 2001, cannot guarantee a return for the foreseeable future.
Since 2012 when it paid Sh1.25 per share dividend totalling Sh20.1 million, Eaagads has kept investors waiting for any other payout. And they may have to wait longer.
Eaagads and other once-popular brands like Sameer Africa, Kenya Airways, Uchumi, East African Portland Cement, Mumias Sugar, Eveready, TransCentury, East African Cables and Kenya Power are struggling to find their footing.
For them, Covid-19 only made a bad situation worse. Losses, debts, stiff competition and instances of mismanagement in some have made it difficult to predict recovery.
Others such as Marshall East Africa took a bow from the NSE on June 20, 2017, having last paid dividends in 2007.
The firm, which is engaged in selling and servicing motor vehicles, had from 2012 endured a free fall in revenue from Sh234.3 million to Sh81.3 million in 2016 before exiting the bourse in losses.
Sameer Africa was once famous for its “Africa rides on Yana tyres” tagline, but its star has been struggling to shine, last announcing a dividend in March 2014 when it came in at Sh0.30 per share.
Once known for manufacturing tyres, the firm turned into an importer of tyres in 2016, citing stiff competition from cheap tyres from markets such as China.
In April 2020, Sameer Africa, which was established in Kenya in 1969 as Firestone East Africa, dropped another shocker.
After 50 years in the tyre business, it said it was quitting in favour of real estate. It would later drop this, saying it would pursue both business lines.
Express Kenya, whose fortunes waned after the firm lost the lucrative logistics deal with East Africa Breweries Ltd (EABL) in 2010, has struggled to mount a serious comeback.
Once known for clearing and forwarding services, the company is now actively engaged in real estate projects as it plans to discontinue the logistics business. But it will have to deal with debts and mounting losses that have accumulated to over Sh460 million, dimming investors’ hope for dividends.
And for Kenya Airways shareholders who bought their stakes between March 25, 1996 and April 1996 when the airline was listed on the NSE, it has been a journey full of headwinds.
Some 26 years ago, KQ was listed at Sh11.25 per share. Today, the share is suspended from the NSE and will remain so until January 5 next year. The stock was valued at Sh3.83 per share when it last traded on July 2, 2020.
In 1997, a year after listing, the shareholders toasted their decision to buy into a national carrier by receiving Sh346 million as dividends from an airline that had previously been in losses and, therefore, not paying any dividends.
Between 1997 and 2012, the national carrier always paid dividends, save for 1999. This was music to investors’ ears. But in 2013, it was 1999 all over again, and they have been there ever since.
KQ’s official data shows 77,037 local individual shareholders are stuck in a rut as the airline starts another restructuring plan.
Investors who were betting on Uchumi Supermarkets’ revival have also burnt their fingers. Once a budding story that rallied Kenyans under the “tujenge Uchumi yetu,” (let’s build our Uchumi) tagline, the retailer soon started crumbling down on the back of mismanagement.
Uchumi last paid a dividend in 2014 when it came in at Sh0.30 per share and has since been preoccupied with survival than dividends for shareholders. The retailer’s last financial performance to be made public was in June 2017, meaning that investors have been in the dark since then.
The Capital Markets Authority (CMA) has not offered any official communication on how a listed firm has gone for years without releasing results or holding annual general meetings. Mumias Sugar awed investors, employers and consumers in equal measure with its “natural sweetness” tag. The firm, which was listed on the NSE in 2001, carried the promise of the millennium for thousands of investors looking for new firms to invest in.
While investors, for instance, in 2008 and 2009 enjoyed Sh0.40 dividends per share, the next two years gave them a rude awakening as the company started to struggle. Mumias Sugar raised investors’ hopes with a Sh0.50 dividend per share in 2012. But that became the last time to earn a dividend. The growing losses amid stiff competition and governance lapses sent the firm into receivership.
Home Afrika, a property investment firm, last paid a dividend in 2011 of Sh5 per share, while Olympia Capital and TransCentury last did so in 2014 at Sh0.25 and Sh0.40 respectively.
Eveready East Africa, which holds the record for the highest subscription rate when it announced its initial public offering, has also struggled to give a return to investors.
The firm had gone for seven years without paying a dividend until 2017 when it paid a Sh210 million dividend. But that was after selling its land in Nakuru as it exited the battery manufacturing business. Once known for its Eveready batteries and the nine lives logo, the firm no longer stocks this brand.
It had a complicated relationship with Energizer International, which owned 10.03 per cent in Eveready but used to control over 80 per cent of the company’s revenue.
Energizer International cut the 50-year old contract as a chief supplier of Eveready batteries in 2015, throwing Eveready East Africa off balance.
The management has had to start working on a new brand, Turbo and embarked on selling imported dry cells and car batteries and also trading in a range of flashlights and washing detergents.
Other firms that have kept investors waiting for a return on their investment include HF Group, Deacons, ARM Cement, East African Cables, Kenya Orchards and Unga Group.
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