BusinessDay

Nigeria’s rising unclaimed dividends

“The only thing that gives me pleasure is to see my dividend coming in”, John D. Rockefeller one of the world’s wealthiest men and a major philanthropist, once said.

Dividends, those cash distributions that many companies pay out regularly from earnings to shareholders, send a clear, powerful message about future prospects and performance.

One of the simplest ways for companies to communicate financial well-being and shareholder value is to say “the dividend check is in the mail.” A company’s willingness and ability to pay steady dividends over time – and its power to increase them – provide good clues about it.

Over the years, the dividends paid by companies have sustained many investors and have also encouraged them to remain in the market. While companies declare dividends and investors enjoy the returns on their investments, the issue of unclaimed dividends has also been a big challenge in the market. Unclaimed dividend is the dividend which is being paid by the company but the shareholder has not yet taken the dividend or claimed the dividend.

Nigerian regulators and operators in the financial markets have been working together to ensure that unclaimed dividends are reduced considerably. As part of efforts to reduce unclaimed dividends in Nigeria’s capital market, the Securities and Exchange Commission (SEC), in collaboration with the Central Bank of Nigeria (CBN) and the Nigerian Inter-Bank Settlement System (NIBSS) launched Electronic Mandate Management System (E-DMMS) platform.

In a major move that may finally bridge the gap fuelling unclaimed dividends, all registrars, central securities depositories and clearing houses will now be required to digitise their operations, as a regulatory requirement rather than an optional service provision, according to SEC.

This comes as the SEC proposes some guidelines that will enable investors in the capital market to do virtually everything they need to do on their internet-enabled appliances and at their convenience.

Read also: Unclaimed dividends: Shareholders say govt can’t claim private funds

The new regulatory framework undergoing review seeks to mandate compulsory adoption of information and communication technology (ICT), particularly web-based applications and devices, for virtually capital market transactions.

These are contained in a guideline on Minimum Operating Standards for Information Technology for capital Market Operators (CMOSs) recently exposed to the public.

At the second Capital Market Committee Meeting this year, Lamido Yuguda, Director General, Securities and Exchange Commission (SEC) while answering questions on unclaimed dividends which has always been an issue as many shareholders continue to complain says, “The reason why the number may be going higher is that a lot of investors have not mandated their accounts. Dividends are now distributed electronically, so dividends go directly into the investors’ account and if everybody mandates their accounts there would be few unclaimed dividends in the system.

“SEC has invested a lot of resources, has embarked on a number of programmes on investor education to ensure that people mandate their accounts. This process is still pen and can be done with the registrars, forms can be obtained from the banks too and it’s a very simple process.

“We also have on our website a tool that assists the investors to determine any unclaimed dividends that they have. And I would encourage everyone to take advantage of these tools or to directly speak to the complaints section of the SEC and we would guide that person appropriately,” he says.

“You should remember that unclaimed dividends have now gone into the new Unclaimed Dividends Trust Fund that is managed by the DMO. So, there are lots of developments in that area and SEC is now not the only party that has this unclaimed dividend. There are a lot of people who are getting their unclaimed dividends paid to them from the Trust Fund and we will not immediately have the information,” Yuguda says.

The Commission works with the registrars to be sure that dividends are now distributed by electronically through the bank accounts of investors rather than through dividend warrants that used to be the case. The challenge is that investors need to mandate their accounts, that is providing their accounts details to the registrars so that the registrars can credit their account directly with these dividends.

Though there are issues with that process, right now, unfortunately, investors will still need to go to each and every registrar that they deal with to give the same information. What SEC says it is doing is to get one point of supplying the needed information of investors because when investors provide it to one registrar, they do not need to provide the information across all the other registrars and these registrars, of course, will automatically get the investors details.

The second thing SEC says it has done is enlightenment. Investors need to be enlightened, a lot of changes has happened in the market and the fact that many people have not mandated their accounts means that many people are unaware of this e-dividend management mandate system.

Another factor causing the increase in unclaimed dividends is that some companies have changed their names. The companies that used to be called one name have changed to another and not all investors are aware that these companies have changed their names and if they are having papers reflecting the old name of the company investors find out that they may be confused and unaware of where to go. What SEC says it is trying to create more awareness of the way the capital market is organised so that investors can get their dividends back.

When a shareholder for any reason does not claim a dividend, it gives rise to the issue of unclaimed dividends. The CAMA 1990 (revised 2020) refers “unclaimed dividends” as dividends not claimed within six months after a declaration, and are returned to the company, from where the investors can make claims up till, but not later than 12 years. The Federal Government had also proclaimed that any dividend not claimed after 12 years becomes statute-barred and will be forfeited.

Nigeria’s Finance Act provides that any unclaimed dividends of a public limited liability company quoted on the Nigerian Exchange Limited (NGX) and any unutilised amounts in a dormant bank account maintained in or by a deposit money bank, which has remained unclaimed or unutilised for a period of not less than six years from the date of declaring the dividend or domiciling the funds in a bank account, shall be transferred immediately to Unclaimed Funds Trust Fund. But shareholders and other stakeholders in the financial sector had faulted the proposal as they resorted to going to court.

Though, still facing stiff resistance by shareholders, the federal government perfected ways to borrow funds from unclaimed dividends and dormant bank account balances unattended to for at least six years, thanks to the Finance Act.

The number of unclaimed dividends that Nigeria has for the end of last year was about N177billion, unfortunately, this is an increase over the number at the end of 2020. At the end of 2020, it was about N168billion. It was N158.44billion as at December 2019.

As unclaimed dividend grows, the SEC has also ascertained the quantum of unclaimed dividends of publicly traded companies that fall within the categories eligible to be borrowed by the Federal Government. This amounted to N56.584billion and $8,153,118.41 respectively. “This process was carried out in accordance with the provisions of the 2021 Finance Act, which mandates that all unclaimed dividends between the ages of 6 and 12 years be transferred to the Trust Fund established for the purpose of borrowing by the Federal Government to support the 2021 appropriation,” SEC says.

On what the Commission plans to do especially to stakeholders that are reported to be frustrating the process, the Commission says it works through a variety of sanction and the capital market operators know that and “we said that whoever is frustrating the e-dividend Mandate Management System will face the SEC sanctions.”

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