For the 2022 fiscal year, over 71 publicly traded companies spanning various sectors, including banking, telecommunications, and consumer goods, collectively disbursed over N1.5 trillion in dividends.
This robust dividend distribution reflected profitability and financial health across these sectors.
However, the narrative took a downturn in the 2023 fiscal year, characterized by a bleak dividend payout, and prospects for the future appear increasingly grim.
FMCGs seem to have borne the brunt more evident in the dividend payouts for the 2023 fiscal year.
Out of the 15 FMCGs listed on the NGX Consumer Index, only seven managed to distribute dividends, totalling N128.53 billion.
This starkly contrasts with the previous fiscal year’s performance, where 12 out of the 15 companies disbursed a total dividend of N183.28 billion. reflecting about a 30% decline.
Cadbury, Dangote Sugar, Nigerian Breweries, Nestle, PZ Cusson, and Unilever, which had paid dividends for prior years, found themselves unable to do so for the 2023 fiscal year.
Moreover, among those FMCGs that managed to distribute dividends for 2023, there was a notable decline in the payout ratio.
Notably, BUA Foods, Flour Mills, Nascon, and Northern Nigeria Flour Mills experienced a reduction in their payout ratios. For example, BUA Food’s payout ratio experienced a slight decrease, declining from 88.62% in 2022 to 88.32%.
Dividend payments are often seen as a sign of a company’s stability and confidence in its prospects. When companies are unable to maintain or increase dividends, it may erode investor confidence and lead to concerns about the company’s financial health and long-term viability.
The inability to pay dividends or a decrease in payout ratios often indicates underlying financial challenges such as declining profitability, liquidity issues, or increased financial obligations that restrict the distribution of profits to shareholders.
A review of the financial reports of these FMCGs for the 2023 fiscal year shows apparently that they faced constrained financial performance characterized by losses, leading to retained losses, and erosion of shareholders’ funds. These financial setbacks significantly contributed to their poor dividend performance in 2023.
The companies most impacted, are Cadbury, Dangote Sugar, Guinness, International Breweries, Nigerian Breweries, and Nestle, which collectively reported substantial losses after tax of N367 billion.
These losses seem to have been exacerbated by foreign exchange losses and increased interest expenses, driven by the devaluation of the Naira.
This is evident in their substantial foreign exchange losses and increased interest expenses.
Specifically, 10 of the FMCGs; BUA Foods, Cadbury, Champion Breweries, Dangote Sugar, Flour Mills, Guinness, International Breweries, Nigerian Breweries, Nestle, and PZ, collectively recorded a notable N894 billion in foreign exchange losses. This reflects a significant year-on-year increase of 1.128%.
Specifically, 10 of the FMCGs; BUA Foods, Cadbury, Champion Breweries, Dangote Sugar, Flour Mills, Guinness, International Breweries, Nigerian Breweries, Nestle, and PZ, collectively recorded a notable N894 billion in foreign exchange losses. This reflects a significant year-on-year increase of 1.128%.
Furthermore, the aggregate interest expenses of the 15 companies surged by 223% YoY to N222.984 billion.
Essentially, the convergence of currency devaluation and escalating interest rates significantly impacted the financial performance of these companies, directly affecting their profitability and subsequently influencing dividend payouts for the 2023 fiscal year.
This trend is expected to persist into 2024 for some of the companies. For example, Cadbury, which has consistently paid dividends over the past five years and even distributed 129% of its earnings in dividends in 2022, was unable to do so for 2023 and is unlikely to for 2024.
This projection is based on its accumulated retained losses of N11.363 billion and negative shareholders’ funds of N6.514 billion.
Likewise, International Breweries, Nigerian Breweries, and Nestle are also expected to forgo dividend payments in 2024 due to their accumulated retained losses. Among them, International Breweries faces a particularly challenging scenario with retained losses totalling N128 billion.
However, it is worth noting that some of them may manage to maintain their dividend payouts.
BUA Foods stands out in this regard, as it has consistently distributed dividends since its listing in 2022. With its impressive earnings growth and substantial retained earnings amounting to N254 billion, BUA Foods is likely to sustain this positive trend.
If companies reduce or suspend dividend payments due to financial constraints, it could have repercussions on their dividend yield, a critical component of total return for income-oriented investors.
This could potentially diminish the appeal of the stock to dividend-seeking investors, thereby impacting share prices.
As of the close of trading on Friday, April 19, 2024, the total market capitalization of the 15 FMCGs under consideration experienced a 1% decline, falling from its Q1 closing figure of N9.4 trillion to N9.3 trillion.
Notably, only Guinness and International Breweries recorded positive share price gains during this period.
Recognizing the fluctuating nature of dividend payments in response to macroeconomic conditions highlights the importance of diversification.
Investors should note that diversifying investment portfolios across various sectors and asset classes becomes crucial to offset the adverse effects of reduced dividend payouts from specific industries or companies.
Conversely, it is important for the companies to strengthen their strategies to mitigate the impact of foreign exchange losses and high interest expenses, to safeguard shareholder interests and ensure long-term sustainability in an increasingly volatile market environment.
With the rising input costs, it becomes imperative for companies to seek enduring sources of inputs through backward integration.
Also, striking a balance in the capital structure is essential to mitigate leverage’s impact on earnings and financial health.