Banks in Africa’s largest economy could reward shareholders with a bumper dividend in 2018 as accumulated profit has soared, giving an impetus to capital.
Investors attach a strong attachment dividend because that income in the form of cash flow guarantees them a return on investment.
Analysts are of the view that banks that have a track record of paying benefit to shareholders will do so this year but those that are burdened by bad asset quality, liquidity issues and battered reserves may be hindered from paying huge dividends.
The cumulative accumulated profit of fourteen (14) biggest lenders in Nigeria spiked by 8 percent to N542.43 billion in September 2017 as against N500.88 billion as at September 2016.
A firm with robust retained earnings could either reward owners or reinvest the money back in the business for future such as acquisitions.
Some lenders with accumulated loses may not reward shareholders as such payment must be made out of distributable profit.
Drilling down the figures shows Union Bank Plc recorded negative retained earnings of N254.18 billion in September 2017, higher than the N244.18 billion deficits recorded as at December 2016, according to data gathered by BusinessDay.
Unity Bank Plc’s accumulated losses stood at N273.64 billion in the period under review, 0.54 percent reduction from the N275.14 billion deficits recorded as at December 2016.
Similarly, Wema Bank Plc recorded negative retained earnings of N36.44 billion in September 2017 compared to N39.18 billion deficits as at December 2016.
However, Zenith Bank, Access Bank, and united Bank for Africa (UBA) are likely reward owners of the business as accumulated profit increased by 41.92 percent, 31.92 percent, 40.17 percent and 14.73 percent to N312.67 billion, N113.92 billion, N126.54 billion and N159.04 billion, respectively.
Zenith, GTBank, UBA Access, FBNH, Stanbic IBTC Holdings, Fidelity, and FCMB paid a combined interim plus final dividend of N184.54 billion in 2017, which is 19.52 percent higher than 2016’s figure of N154.40 billion.
Bank rally since the mid-2016 could result in lower dividend yield (DY) as there is a relationship between dividend payment and market value.
Zenith has a dividend yield of 7.39 percent, GTBank, 4.84 percent; UBA, 6.89 percent; Access, 6.09 percent; FBNH, 2.15 percent, Stanbic IBTC Holdings, 1.42 percent; Fidelity, 4.76 percent, and FCMB, 5.26 percent.
Some firms are not known to have a steady dividend policy as the owners believe they can invest the money for shareholders more than they can do.
For instance, Warren Edward Buffett, American business magnate, investor, and philanthropist and Chairman and CEO of Berkshire Hathaway is loath to paying dividend.