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Investors cry for bigger stake in stock market ‘super’ profits

By - | May 19th 2013

By Frankline Sunday

Telecommunications service provider, Safaricom, caused a stir in the corporate scene last week when it reported Sh25.5 billion in pre-tax profits, the largest figure in a Nairobi Securities Exchange (NSE) listed company.

Its revenues grew to Sh124.3 billion with M-Pesa, its crown jewel, netting Sh21.8 billion in revenues. This was akin to the expectations of many analysts who have stated that telecommunication providers will have to find alternative revenue streams to drive their growth.

Safaricom Chief Executive Officer Bob Collymore stated that the strong performance of non-voice segments and services of the company would continue informing the company’s growth agenda going forward.

“Most notable was our growth in non-voice service revenue with a 29 per cent increase in the year, underpinning our strategy to diversify our revenue channels,” he said.


The firm announced a dividend payout of Sh0.31 per share up from Sh0.22 in a similar period last year. This was the part that many shareholders were waiting for. A total of Sh12.4 billion in dividends will be paid out to shareholders if approved by the shareholders. For every share held in the company, shareholders are entitled to 31 cents, which is a 41 per cent increase.

The dividend payout by Safaricom is the latest windfall for investors in the NSE in a year that has seen many listed firms mostly in the financial sector, send their shareholders smiling all the way to the bank.

NIC Bank two months ago announced that it will pay out Sh1 in dividends for every share held after the bank, which has operations in Tanzania and Uganda reported a 12.18 per cent increase in profit.

The Kenya Commercial Bank, KCB, Equity, CFC Stanbic and Barclays Bank are the other financial counters that have rewarded investors with generous dividend payouts over the last five months.

However, even as shareholders rejoice at the windfall, retail investors are emerging a dis-satisfied lot as their participation in the equities market does not offer them the returns they hoped for.

Clifton Mwangi is one such investor who has decided to sell off his 2,000 shares in Safaricom because the amount of dividends he has received over the past three years for holding on to the stock had counted less on his investment portfolio.

“I applied for 5,000 shares in the Safaricom IPO in 2008 but after it was over-subscribed I was only able to get 2, 000,” he recalls.

“The first time the company paid out dividends I got Sh200, while the second time I did not receive any,” he explains. “This time I am eligible for Sh800 but I have decided to liquidate my shares and put the money in other investments”.

Clifton is just one of numerous of investors who take to the capital markets with high hopes of making a quick buck but often get burned.

Mr Samuel Gichohi, a business development manager at NIC Securities, says most retail investors lose out because they do not have enough investor education before committing their monies in the stock market.

“Most retail investors come into the market without proper investment strategies and little knowledge of the investment cycle,” he explains.

“They are often dividend oriented and the common misconception is shares are meant to rise after a period of time making you rich so they end up holding on to their investment.” In addition to this, there is a herd mentality that has been blamed on investors blindly placing their bet on securities because other investors have done the same or because there has been speculation that the particular stock is going to appreciate. “There is a gap in investor education that needs to be filled by the various investment regulators including the Capital Markets Authority, NSE including individual players,” he says.

Investors’ position

Retail investors need to understand the market cycle and what their individual propensity for risk is because this is what underpins one’s decision to place their bet on a particular stock.

For example, if a shareholder buys a share of Sh5 and the dividend payable is smaller than the price change, one can sell out, make the profit and place the money on another stock.

“There are cases where retail investors have started off with only Sh5,000 but have ended up having portfolios worth millions of shillings in a space of several years. The key is in doing adequate research and making wise moves with your money.”

Safaricom witnessed a rally early in the week that saw its share price hit a high of Sh7.55, (last seen in June 2008) before yielding to selling pressure to close at Sh7.15 at the end of the week.

The counter, however, edged up by 2.88 per cent, week-on-week to close at Sh7.15, with a total of 90.35 million shares trading exchanging hands.  This can be attributed to mixed investor sentiments that resulted to relatively equal levels of demand and supply on the counter.

A price rally on growing demand after striking earnings growth has led some investors to take profits, while simultaneously other investors spurred by the improved macroeconomic space the company operates in have opted to enter the counter. This tug of war is expected to carry on though strong support is being seen build up above Sh7.00 despite a supply overhang of 7.09 million shares at the close of the week.

 An important part of your investment return is dividends. Usually a cash payment to shareholders, dividends are most often paid on a quarterly basis. Some companies keep all of their profit and reinvest it back into the company, while others pay out a portion to shareholders.

There has been a significant improvement in dividends declared because of last year’s good performance,” said Eric Musau, an analyst at Standard Investment Bank.

Mr Musau reckons that banks (Equity bank, Barclays, Bank, Cooperative Bank and StanChart bank) — which benefited from high interest rates — topped the list of corporate generosity to shareholders followed by a few manufacturers such as British American Tobacco.

KCB topped the profitability chat with Sh12.2 billion compared to Sh10.9 billion in 2011, allowing its top investors to earn millions of shillings in dividends.

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