The 2016 Dividend League Table

Article #433 by Edward Rizzo - Published Published Articles

Following the end of the 2015 annual reporting season last week, the updated dividend league table is now complete and it is possible to compare the dividend returns across the local equity market.

The 2016 dividend league table is based on the net dividend to shareholders in respect of the 2015 financial year and the current market price of the respective shares. Since some companies benefit from tax incentives and distribute dividends out of tax free profits or reduced tax compared to the standard 35%, the dividend league table is based on the net dividends being proposed or paid to shareholders. This provides a better comparison as opposed to the gross dividend.

The 2016 dividend league table should not be looked at in isolation. A comparison with the previous year’s league table provides some interesting observations including the factors that led to such fluctuations.

In general, while there had been a marked downturn in yields depicted in the league tables in the previous two years (between 2014 and 2015), dividends across the overall equity market are now not significantly lower when compared to last year’s dividend league table.

Bank of Valletta ranks in top position for the third successive year with a dividend yield of 3.3% compared to 3.6% in 2015. BOV’s overall dividend to shareholders was largely unchanged in the last two financial years while its share price edged 8.3% higher over the past 12 months. Since BOV’s financial year ends in September, they have a somewhat different reporting calendar to most of the other companies. Last Friday, BOV reported its interim results for the six months ended 31 March 2016. Profits after tax increased by 11% to €44.6 million during the first half of their current financial year and dividends by 8.3% as the bank seeks to increase its capital partially via retaining higher levels of profits. In fact, the Chairman gave a strong indication of lower dividend payout ratios going forward.

“… Dividends … should not be the sole over-riding factor influencing an investment decision …”

The number two position in the 2016 dividend league table goes to HSBC Bank Malta plc – this is also the equity that gained most places since last year as it moved up from 12th position. The reason behind this increase was two-fold – on the one hand the dividend increased by 20.5% from 2014 to 2015 and on the other hand, the share price declined by 13% over the past year. The combination of these two changes helped the net dividend yield improve to 3.1% from 2.3% in 2015. It is also worth highlighting that HSBC’s equity is the only one among the dividend paying equities whose price declined over the past 12 months.

GO plc is ranked in third place with a net yield of 2.9% compared to 2.3% (11th position) in 2015. The improvement in the league table is due to the sharp increase in dividend to shareholders as the net dividend increased by 43% from €0.07 per share paid last year in respect of the 2014 financial year to €0.10 per share. This is being distributed shortly after approval from shareholders during the Annual General Meeting next week. On the other hand, the growth in the dividend was partially offset by the increase in the share price of 16% over the last twelve months although this is not adjusted to take account of the dividend in kind of €0.331 per share distributed to all GO shareholders by way of shares in Malta Properties Company plc.

Plaza Centres plc maintained its position in 4th place and the dividend yield was also largely unchanged from one year to the next at 2.8%. It is interesting that the growth in the dividend of +6.7% was matched by an almost identical increase in the share price over the past 12 months of +8.3%. Within the same sector, Malita Investments plc ranks in 5th position with a dividend yield of 2.6% (the minimal increase in the dividend was outweighed by the 7% increase in the share price) while Tigne’ Mall plc ranks 10th with a net yield of 2%. The yield of Tigne’ Mall declined from last year’s level of 2.4% as the 20% growth in dividends was more than offset by a 43% rally in the company’s share price.

Medserv plc’s dividend yield declined from 2.6% to 2.5% although the equity improved its position in the league table to 6th. Similar to GO plc, the total dividend distributed to Medserv shareholders improved by 43% although for the 2015 financial year this was distributed as an interim dividend in December 2015 ahead of the rights issue and debt funding required to conduct the acquisition of METS in February 2016. The slight reduction in yield was impacted by the 49.6% increase in Medserv’s share price over the past twelve months. The combination of the high absolute dividend and the increase in the share price was surely welcome by Medserv shareholders.

While all companies either left their dividends unchanged or hiked their distributions to shareholders, Malta International Airport plc is the only company that reduced the dividend to shareholders. The overall dividend in respect of the 2015 financial year declined by 9.1% from €0.11 per share to €0.10 per share. This, however, must also be seen in the context of the sharp increase in the final dividend in respect of 2014 which was paid to shareholders in June 2015. One of the reasons for the reduction in dividend, despite a further increase in profitability, may be the significant capital expenditure programme over the coming years which the company announced in December 2015.

The only new entrant to the 2016 dividend league table is MIDI plc as it declared its first dividend since its IPO in December 2010. The net dividend of €0.007 per share, which will be paid after approval at the Annual General Meeting also next week, gives a yield of 1.8% on the current share price of €0.39. However, it is also worth highlighting that the share price has recovered by a further 34.5% over the past twelve months following the sharp decline to a low of €0.21 in November 2014 and January 2015.

On the other hand, 6pm Holdings plc is the only company that exited from the dividend league table. Although profits after tax more than doubled in 2015 to GBP1.69 million, the Directors did not recommend the payment of a dividend in the light of the interest being shown by third party investors in taking over the company.

The other IT company, RS2 Software plc, is the lowest ranked company in terms of dividend returns. Although RS2 is proposing a 25% increase in dividends, this was outweighed by the superior share price performance as the equity surged by 142% over the past twelve months.

International Hotel Investments plc, FIMBank plc and Grand Harbour Marina plc again do not feature in the 2016 dividend league table as all companies failed to pay dividends to their shareholders.

Malta Properties Company plc also failed to declare a maiden dividend to shareholders. However, this was highlighted in their Prospectus dated 16 October 2015 where the Directors explained that the company will be unable to pay a dividend in the first two to three years following listing in view of its funding requirements to develop a number of the properties in their portfolio and until such time as the new commercial space being developed is eventually leased out.

Dividends distributed by a company in one particular year should not be the sole over-riding factor influencing an investment decision. As a start, the sustainability of the current dividend is very important due to a multitude of factors that can affect dividend payments from one year to the next such as a company’s short and medium term business prospects, expansion plans and funding requirements as well as regulation affecting a particular industry. These factors, amongst others, may adversely affect a company’s dividend from one year to the next and impinge on the suitability of such an equity in an investment portfolio for income-oriented investors. The situation with Grand Harbour Marina, from being the highest yielding equity in 2013 and the second highest in 2014 to no dividends in the following two years, is a good case study in this respect. Moreover, the stiff regulation across the banking sector with specific emphasis on dividend distributions is another very clear example which many local investors are now surely aware of.

In addition to the historic or ideally the future potential dividend returns from a particular company, investors would do well to take account of the growth prospects of a company before deciding whether to proceed with an investment in the company as part of their diversified investment portfolio. Investors should not only invest in companies with a dividend income stream. They should also gain some exposure to companies that may not be particularly appealing from a dividend perspective but may offer sizeable growth prospects due to certain strategies being adopted. This is especially relevant for the various local companies actively seeking international expansion, most of which have seen their share prices strongly outperform other companies over the past few years thereby producing overall returns to shareholders far superior to those with a relatively attractive dividend payment.

The return on equity (ROE) is a good indicator which investors should also take into account when considering which companies to invest in. A review of the ROE’s across the local equity market will be published next week.

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This article was produced by Edward Rizzo, Director at Rizzo Farrugia, which is a company licensed to undertake investment services in Malta by the MFSA under the Investment Services Act, Cap. 370 of the Laws of Malta and a member of the Malta Stock Exchange. The company’s registered address is at Airways House, Fourth Floor, High Street, Sliema SLM 1551, Malta.