Honestly, there is one particular sentence I always love to come across in the annual reports of listed companies. It goes like:
‘The directors have recommended a dividend of GH¢… for the year ended…’
As some of you may be already aware, a number of listed companies distribute portions of their earned profits to their shareholders on a regular basis. This payment, referred to as dividend, is one of the benefits of investing in stocks. Although dividend payments are often made in cash, they may also be distributed in the form of bonus shares (free additional shares to existing shareholders) or a combination of both. For instance, a company may issue bonus shares in the ratio of 1 share per 10 existing shares held by its shareholders.
Many listed companies pay dividends to their shareholders once annually. A few of them however pay dividends twice per annum, which are made up of interim and final dividends. TOTAL Petroleum, Tullow Oil and Mechanical Lloyd are examples of the few ones that usually pay dividends twice in a year. It should however be noted that even though some companies pay dividends twice in a year, the sum of their two dividend figures might not match the single dividends paid by other companies.
While some institutions prefer to issue cheques as payment medium of their dividends, others deposit them directly into shareholders’ bank accounts. CAL bank, UT bank and Tullow Oil are typical examples of companies that deposit dividends directly into their shareholders’ bank accounts.
It may also not be appropriate to compare the dividend figures of two different stocks, particularly if they are of different industrial sectors. A more appropriate way to determine which stocks pay more as dividend could be the use of dividend yields. Dividend yield is the dividend expressed as a percentage of the stock price. This normally ranges from 4% to 9% depending on the company’s dividend policy and other factors such as a sharp decline in stock prices.
Simply, Dividend yield = Dividend per share/price per share.
Although dividend payments remain one of the factors looked for by some investors during stocks purchase, they should not necessarily be the yardstick to determine whether a stock is good or bad. This is because even though a company may make massive profits, it may choose to invest most of the profits in expansion projects instead of giving them to its shareholders as dividends. Nonetheless, dividends can still serve a useful purpose for investors who seek regular income.
Infact, dividend payments as well as an increase in dividend payment rates cannot be guaranteed. For example, Enterprise Group Limited, which is known for consistently paying dividends to its shareholders, skipped issuing dividend for its 2011 financial year. Likewise, GGBL (Guinness Ghana Breweries Limited) paid no dividend to its shareholders from 2010 to 2012. Moreover, Camelot Ghana Limited paid a constant dividend of GH¢ 0.005 for four consecutive financial years (2008 to 2011) without increasing the rate.
On the other hand, Goil (Ghana Oil Company Limited), which listed on the GSE in November 2007, has consistently paid dividends to its shareholders in an increasing rate to date.
Without bombarding you with further dividend theory, let me tabulate below, the dividend payments of 10 selected stocks for the past decade.
1. Dividend payments of CAL Bank Limited (CAL)
2. Dividend payments of Guinness Ghana Breweries Limited (GGBL)
3. Dividend payments of Ghana Commercial Bank (GCB)
4. Dividend payments of Ecobank Ghana Limited (EGH)
5. Dividend payments of Societe Generale Ghana Limited (SOGEGH)
|Dividend, GH¢||0.045||0.045||0.03||Issued bonus shares||0.04||0.035||0.04||0.04||0.06||Issued bonus shares||0.076|
6. Dividend payments of Enterprise Group Limited (EGL)
7. Dividend payments of Fan Milk Limited (FML)
8. Dividend payments of HFC Bank (Ghana) Limited (HFC)
9. Dividend payments of Ghana Oil Company Limited (GOIL)
10. Dividend payments of Camelot Ghana Limited (CMLT)