Most of the listed companies are keeping the majority of their profits instead of sharing the spoils with their shareholders in the form of cash dividends -- in yet another reason for the currently low confidence in the stock market.
Typically, investors put money in a stock after analysing the company’s earnings. But their efforts go in vain if the companies become tight-fisted when it comes to cash dividends.
Last year, the stock market regulator directed the companies to articulate their reasons for retaining profits rather than distributing them.
But, most of them are not following the instruction, in what can be viewed as the diminishing weight of the Bangladesh Securities and Exchange Commission.
The others are briefly mentioning the reasons in their annual reports -- leaving the investors none the wiser.
Of the 359 listed companies, 309 logged in profits in their last financial year.
The 309 companies’ total profits stood at Tk 23,015.41 crore, but 53.85 per cent was retained by them. This, arguably, does not look too bad -- and Grameenphone is to thank for it.
The country’s leading mobile operator is a generous sharer of profits with its general shareholders.
If Grameenphone’s dividend amount is taken out, the percentage that the companies hold on to for themselves rises to about 68 per cent.
“This is just cheating with investors,” said Maruf Reza a retail investor, adding that most of the listed companies are being stingy about cash dividends.
A company can keep their profits legally by declaring stock dividend -- which is a dividend payment made in the form of additional shares rather than a cash payout -- or reserves if it predicts higher profits by further investment.
“However, keeping profits year after year even when the business prospects for the near future do not look too bright proves there is some other intention,” Reza added.
RN Spinning Mills never provided cash dividend since its listing in 2009, when it raised Tk 30 crore. It booked profits on most of the years and yet provided stock dividends.
Now, it has become a loss-making company.
So, the company provided nothing to its investors in the last ten years but a depreciation of their portfolio: its share price has now come crashing down to just Tk 3.
Companies in which the directors have small stakes tend to not provide dividends, said another stock investor citing the example of RN Spinning Mills.
RN Spinning Mills’s five directors altogether have a 30 per cent stake in the textile manufacturer.
Some 80 companies did not pay anything to the shareholders despite recording profits, according to data from the Dhaka Stock Exchange. And most of the companies’ directors hold less than 40 per cent shares.
However, 34 companies provided higher dividends than their profits. Of them, 17 are mutual funds and three are multinationals.
As directors of the multinational companies hold most of the stakes, they provide more cash dividends.
This is their modus operandi to repatriate their profits.
Many local listed companies either cannot pay their shareholders or are not willing to pay, said Mizanur Rahman, a stock market analyst.
“This is because of poor corporate governance.”
The companies’ underlying cash flow is lower compared to their profits because the companies are ill-managed and run as a family business, he said.
If the companies are not sharing their profits, they may be cheating investors in various ways like over-invoicing, said Rahman, who is also a professor at the Dhaka University’s accounting and information systems department.
The chief financial officer of a listed company said upon condition of anonymity that his firm was able to provide at least 80 per cent cash dividend last year but the allowed only 20 per cent.
The company’s directors either want to give stock dividends or keep the profits although it already has a reserve of more than Tk 700 crore.
“Worldwide, stock dividend is not considered as any dividend because it pays nothing,” said Md. Moniruzzaman, managing director of IDLC Investments, a merchant bank.
But the retail investors here have to make do with stock dividend.
Poorly performing companies normally provide stock dividend year after year.
“This is because of lack of corporate governance.”
Globally, when a company has huge reserves and lower possibility of further growth, it buys back shares, which increases its earnings per share.
“But we are seeing many companies here and yet they are not buying back shares,” he added.
A top official of the BSEC said requesting anonymity that they are aware of the issue and will look into it.