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The story about listed companies’ dividends
A lot of securities companies try to pay high dividends in cash in order to reassure shareholders. However, experts said that shareholders’ confidence originates from businesses’ real ability, not from the high dividends.
In November 2008, Nam Viet Joint Stock Company (ANV) announced it advanced the dividend at 18% of the shares’ face value to shareholders, the same level as 2007’s.
The announcement immediately caused a surprise to many shareholders and the market. The dividend level proved not to be high if comparing it with many other listed companies. However, the problem was that analysts all knew well about the difficulties of ANV and they believed that the path of seafood export companies in 2009 will still be tough, especially with ANV’s seafood export to Russia’s market, which remains stuck due to technical barriers.
Two months later, the difficulties in 2008 of ANV were quantified as the company announced the modest profit of VND 106 billion for all of 2008, just fulfilling 32% of the yearly plan. The company’s cash volume decreased drastically from VND 266 billion at the beginning of the year to VND 59 billion on December 31, 2008. The company’s short term loans increased from VND 117 billion to VND 762 billion, while the value of inventory products (mostly finished products) rose from VND 231 billion to VND 679 billion.
With the total volume of 65.6 million in circulation out of 66 million listed shares, ANV has to spend VND 118 billion to pay dividends. In fact, the financial situation of the company still allows the company to pay dividends at the announced level. Moreover, the 18% dividend proves to be within the limit set by the shareholders’ meeting. However, a question has still been raised as to why ANV still sets the highest possible dividend level, while its production and business result in 2008 proved to be modest.
Tuong An Vegetable Oil Joint Stock Company (TAC) is another example. TAC will finish the list of shareholders for paying 2008 dividends on March 25.
TAC”s profit in 2008 proved to be modest, just VND 11.8 billion, fulfilling 12% of the yearly plan of VND 100 billion, while the last year’s figure was VND 125.7 billion, which means the EPS decreased from VND 6,623 to VND 634. The cash volume and deposits of less than three months of the company in 2008 dropped from VND 364 billion to VND 80 billion, while the inventory volume increased from VND 151 billion to VND 277 billion, the total assets dropped from VND 837 billion to VND 686 billion, and stockholder equity fell from VND 361 billion to VND 309 billion.
Despite the decreased business result, TAC still decided to keep the dividend at VND 2,000 per share. The dividend proves to be higher by 4% than the level approved before by the company’s shareholders’ meeting.
In principle, high dividends imply the prosperous development of the company. Right after TAC announced the high dividend level of VND 2,000/share, TAC share prices increased significantly. However, Ken Tai, analysis expert of Kim Eng Securities Company has advised investors to keep cautious with investment decisions. Investors should consider the operation of enterprises thoroughly before deciding to invest in a company rather than considering the dividends only.
The expert said that the businesses which pay low dividends and use the profit for further investment would be better for investment than the businesses, which pay high dividends but have unsatisfactory business result.
Huy Nam, a securities expert, also said that paying high dividends when the business result is low may be welcomed by some investors. However, the majority of investors still want to see businesses build up long term and sustainable development strategies. He said the shareholders’ confidence originates from businesses’ real ability, not from the high dividends.
VietNamNet/DTCK
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