Dividends are not a popular topic these days on the stock exchange – at least for those investors who put their money into oil, pharmaceutical or real estate companies, erstwhile sources of big profits.
“Dividends are down from previous years, because of low net profits and companies' decision to keep liquidities within firms,” Marius Pandele, head of research at brokerage company Tradeville, told Business Review.
Different factors affect a firm's decision whether to pay out dividends to shareholders or not – and some have recently changed tack. Pandele says that on the one hand, some issuers on the Bucharest Stock Exchange (BSE) now prefer to allot dividends, having distributed free shares in past years, which have lost their shine for shareholders. Banca Transilvania is a case in point.
On the other hand, some companies listed on the BSE have paid out dividends every year, but have now decided to keep the money within the company to help them through the economic crisis. Petrom and other heavy industry companies have taken this option.
Others have been ploughing the profits back in for some time. “In the past three years, the company's profit was reinvested and no dividends were given,” said Cristina Suteu, head of the PR department at Dafora.
Higher yields for 2008
Capital market analysts say that a lower absolute value of dividends does not mean a decrease in yield as well. On the contrary, the falls in share prices have made dividend yields the highest in recent years. This side effect has brought about significant stock appreciation in the past few weeks, with many investors getting very excited about the chance to achieve a gross profit of 10 to 15 percent of their investments in little more than a month, especially at such a gloomy economic time.
Andreea Gheorghe, analysis department manager at SSIF Intercapital Invest, told BR, “While for 2007 about 20 listed companies approved dividends at an average of 3.45 percent, last year, the average dividend – based on the sums paid by 19 companies – is around 7 percent, as the capital market has undergone a substantial increase over the past three months.”
She added: “The increase is mainly determined by the constant falls in share prices compared to last year. Some companies have even been registering a drop in the absolute value of gross dividends, for instance the five financial investment companies (SIFs). This year, dividends could reach as much as 16 percent, as in the case of Alumil Rom Industry and Alro Slatina, or about 13 percent at Santierul Naval Orsova.”
Utilities firms, banks and SIFs pay out big…
The utilities sector is in a good position regarding dividends, with both listed companies, Transelectrica and Transgaz, deciding to reward shareholders this way. Transgaz has a better dividend yield, of about 8 percent taking into account the March 31 share price (RON 10.47 per share – with the dividend proposed at a quotation of RON 115). “Transelectrica owes this to the euro, dollar and Japanese yen loans contracted, as the devaluation of the national currency substantially cut last year's net profit. The dividend yield in this case is a bit over 3 percent, with a proposed gross dividend of only RON 0.3 per share,” said Pandele.
SIF investors are also set to reap rewards. Four out of the five SIFs intend to distribute dividends of between 6.1 percent for SIF Banat Crisana and 10.5 percent at SIF Transilvania and SIF Moldova. In SIF Muntenia's case, the share price increases recorded recently led to a dividend yield of about 8.3 percent. But SIF Oltenia will not allot dividends. “The banking domain will also bring investors good yields. Three of the four listed banks have decided to pay dividends from last year's profit. The dividend yield will be 5.2 percent for Erste Bank, 5.9 percent for Banca Transilvania and 11.4 percent for BRD, at the share price of March 31,” said Tradeville's Pandele.
He added that surprise news had come from Alro Slatina: the company decided to allocate 84 percent of last year's net profit to granting dividends. At the time of the announcement, the yield reached over 20 percent of the market share price. Subsequently, though, it has recorded a slight fall as a result of a share price increase.
… But no dividends from oil, pharmaceutical and real estate firms
One sector which has disappointed BSE investors is oil. The only company that will provide a satisfactory dividend is Rompetrol Well Services, with a yield of about 7.5 percent.
Petrom and Oil Terminal, whose shareholders had become accustomed to rather large dividends in past years, have chosen either to keep all the profits at the company's disposal – as Petrom did – or give a symbolic dividend with a yield of less than 1 percent – a move Oil Terminal was persuaded to make as a result of its very low profit last year.
“To ensure we have the necessary funds to finance this year's investment program – a reduced one compared to 2008 – the Petrom management's proposal is not to give dividends for last year,” said Mariana Gheorghe, Petrom's CEO.
Rompetrol Refining meanwhile does not register on the dividend radar, having last year recorded even greater losses than it did in the previous one.
And MEFIN Sinaia shareholders will not see any dividend this year either – something that is now par for the course.
“MEFIN has not paid any dividends since its privatization in 2003. All of the company's resources have been re-invested, in order to modernize operations and support company development. Management has not revised this policy and does not anticipate a revision in the near term. We hope that the country will offer the necessary conditions to continue the manufacturing of our core products in Romania (and in Sinaia), in order to avoid a possible move to a more investor-friendly country,” said George Barba, president of the administration council at MEFIN.
Investors in pharmaceuticals and real estate are also advised not to make any plans for a dividend windfall.
“None of the three major pharmaceutical companies on the local market will give dividends this year. Biofarm finished with losses last year, because of financial investments in SIFs, while Zentiva and Antibiotice have chosen to reinvest their profits,” said the Tradeville representative.
Last year was a tough one for real estate businesses, and the first three months of this year have followed the same pattern. As a result, dividends are off the menu.
The liquidity crisis is another reason that companies have decided to hold onto their surplus cash, even though some of them made a profit last year.
By Dana Ciuraru