How stable are large caps dividend? 

Some large cap stocks have a favorable dividend cover ratio while others have a slim ratio.

Dividend cover is the ratio of company’s earnings (net income) over the dividend paid to shareholders, calculated as net profit or loss attributable to ordinary shareholders by total ordinary dividend.

The ideal cover should be two times because it means profit is double the amount the company is paying out to shareholders.

A ratio of 1 or less than the figure means a firm is paying out dividend to shareholders equal to or more than it earned in a particular year.

Guaranty Trust Bank (GTBank), the most capitalized lender in Africa’s most populous nation has a dividend cover of 2.25 times as at December 2016, which is higher than the 1.91 times recorded in 2015.

GTBank has a dividend yield of 5.13 percent while total payout was N58.86 billion in 2016.

Zenith Bank Plc’s dividend cover based on full year 2016/2015 and interim and final dividends on those profits, rose to 2.07 times, from 1.87 times 12 months previously.

The lender total dividends paid was up 11.09 percent to N62.78 billion for the year 2016 while yields stood at 8.03 percent. Its shares has risen by 69.79 percent since last year.

The shareholders of Dangote Cement Plc, the largest producer of the building material in Nigeria and biggest company on the Nigerian Stock Exchange (NSE) had a dividend cover of 1.83 times in 2016, this is a sizable increase from 1.33 times it recorded in 2015. It has a DY of 3.54 percent while dividends increased by 6.28 percent to N144.84 billion as at December 2016.

Dangote Cement share price has risen by 37.9 percent since the beginning of this year.

On the flip side Nestle Nigeria Plc’s dividend cover was 1.0.

The consumer goods firm paid out all of its N7.92 billion net income as dividend in 2016. Its dividend payment fell 64 percent in 2016.

Nigerian Breweries, the largest Brewer in the country, has a dividend cover of 0.78 times earnings. Its N36.50 billion total dividend for 2016 exceeded N28.41 billion net income. It also recorded 100 percent payout in 2015 as evidenced by a 1.01 coverage ratio.

The cumulative total dividend payment of 7 big caps Dangote Cement, Nigeria Breweries, Nestle, GTBank, Zenith Bank, Total, and Mobil stood at N319.82 billion in 2016 while combined cover was 1.64 times.

The second part of this story will dive into the dividend paying capacity of consumer goods firms amid increased liabilities and a debt pile up.

The industry is one of the worst hit from an economic downturn caused by a severe dollar shortage and a sharp drop in the price of oil since mid-2014.

The study shows that dividend cover is falling among some consumer goods firms as rising cost of production and a weak currency continues to suppress margins.

Firms like Unilever and Guinness are raising capital via a right issue in order to meet working capital requirements and clear the backlog of liabilities caused by a weak currency.

 

BALA AUGIE