Input your search keywords and press Enter.

Pension funds, employee schemes benefit from dividend pay outs

THE decision by several Zimbabwe Stock Exchange-listed firms to declare dividends in 2020 saw pension funds, workers and investors receive a windfall that cushioned them against effects of the coronavirus pandemic and other market vagaries, experts have said.

This was after blue-chip and mid-size counters, such as Delta Corporation, Innscor Africa, CBZ Holdings, FBC Holdings, Meikle and Hippo Valley, among others, announced dividend payments and rewarded their shareholders following turning healthy profits last year.

Batanai Matsika, the Head of Research at Morgan & Co, said most companies that are failing to secure foreign currency on the forex auction system, which they need to procure raw materials and equipment, end up paying shareholders instead of keeping the money in the bank.

“Most capital requirements are usually United States dollar denominated, that is, the purchase of machinery and so forth. It therefore makes sense for companies earning in Zimbabwe dollars to declare dividends,” Matsika said.

Zimbabwe’s foreign exchange regulations remain a challenge to many investors, especially the difficulty of repatriating profit earnings out of the country. This has led to a number of investors either disinvesting or adopting a cautious wait-and-see approach.

Multinational corporations operating in the country, securities exchange investors and other foreign businesses have found it very difficult to remit dividends to their shareholders and to settle their foreign obligations due to the country’s stringent exchange control regulations.

Economist Victor Bhoroma said the listed counters declared dividends because they experienced growth in revenues and profits, which gave them room to provide a return for hard hit shareholders.

“The companies (that declared dividends) are largely the blue chip organisations in their respective sectors and 2020 was a good year for them in terms of business recovery. Declaring dividends is also key in attracting new and maintaining current investors, demonstrating financial strength in a fragile market and providing strong support for the stock price on the ZSE,” he said.

This view was also shared by an analyst with an equities advisory firm, who noted that despite the COVID-19 pandemic, shareholders still needed to be taken care of.

“Dividend pay-outs may increase further significantly in the coming months as companies move to protect shareholder value. Large corporates are likely to continue paying out dividends, but the mid-size and the small firms may lose out in this and it may lead to a migration of shareholders to blue chips from mid and small-cap companies,” the analyst said.

Pension funds such as Old Mutual, the National Social Security Authority and First Mutual Limited, among others, who hold significant stakes in listed firms, reap huge returns when companies declare millions of dollars in dividends.

Current workers in major firms also benefit from the dividend windfall. For instance, Innscor declared a final annual dividend totalling ZW$28.2 million to Innscor Africa Employee Share Trust (Private) Limited. ­

“The Innscor Africa Employee Share Trust continues to support all qualifying beneficiaries with both dividend flow and access to various loan schemes,” Innscor Chairman Addington Chinake said.

At the same time, Axia Corporation declared a final dividend of ZW$5.2 million to the Axia Employee Share Trust (Private) Limited.

Economist Clemence Machadu said some companies that declared dividends last year had sufficient distributable reserves, as well as the financial capacity to remain solvent and with a prudent cash flow, despite the low business activity during the fiscal year.

“So it is my view that they took that route not as some kind of irrational exuberance, but as a carefully calculated and executed decision to manage shareholder expectations whilst maintaining the integrity of the business as a going concern,” he said.

“There is also another aspect of high inflation recorded during the first half of the year, which also might have contributed in the decision to declare dividends in order to avoid the erosion of dividends before distribution,” Machadu said.