KARACHI: The number of companies that distribute dividends to shareholders dropped from 256 in FY19 to 217 in FY20 and 180 in FY21 on the Pakistan Stock Exchange, according to a brokerage house report.

The sum paid out to investors in dividend amounted to Rs357bn, Rs308bn and Rs381bb (on an ex-date basis) for the above three years, says a report issued by Optimus Capital Management.

The financial results for the last quarter ended Dec 30, 2021 are yet to be unveiled which is likely to raise the dividends for FY21 to a record high.

In terms of dividends paid, FY17 was outstanding with distribution to shareholders amounting to Rs390bn by 243 listed companies, while going by the number of payers, the highest number of 256 companies distributed dividends amounting to Rs357bn in FY19.

The dividend payouts by commercial banks dropped to Rs88bn for FY20. The major reason was that on April 23, 2020, at the height of the devastation wrought by Covid-19 around the world, the SBP in line with the banking sector regulators approach elsewhere such as India and UK, asked banks to suspend distribution of profit by way of dividends for the quarters ending June 30, 2020 and Sept 30, 2020.

The central bank said it was “to conserve capital and further enhance the lending and loss absorption capacity of banks”. After the removal of the moratorium banks distributed healthy dividend which for FY21 (ex-date) stands at Rs104bn—as yet the highest payout by any of the 39 sectors on the PSX.

After the commercial banks, the sector that distributes the biggest sum in dividends is Oil & Gas Exploration Companies (E&P). In FY20, the E&P companies paid out Rs49bn and Rs64bn in FY21 (ex-date). Oil & Gas Development Company (OGDC) dividend amounting to Rs34bn FY21 (ex-date) is by far the highest payout by any company.

Overall, less than one half of the 531 listed companies pay out dividends to shareholders, although investors put their money in equities for dividends and capital gains. Mainly in times of a falling market, corporates that do not skip a dividend find favour with investors.

But many major corporate entities also skip a dividend to retain cash for expansion or new projects or even working capital needs. The question if corporates earning profit should be forced to pay dividend or the decision between payout and retention should be left to the company boards has remained a subject of intense debate.

Sponsors who do not wish to part with cash, usually refer to Warren Buffett, the CEO of the world’s biggest conglomerate Berkshire Hathaway. The market value of class A stock of BH is currently $421,000. In 1962 Buffet had bought the majority stake for $7.50 a share. Regardless of how expensive the stock is, Warren Buffet recognised as the most successful investor in 100 years, has never once paid a dividend, retaining all the cash to reinvest in new projects and acquisitions.

Published in Dawn, July 3rd, 2021