Strong payouts charm investors


BY JAGDEV SINGH SIDHU

SEVERAL well-known companies on the KLSE have recently announced larger dividends along with their latest quarterly results, sparking expectations that other companies within the same cluster of businesses may also increase such payouts. 

Analysts, however, say investors could expect higher dividend payouts from selected companies only as they doubt larger dividends would be a broad-based trend in the market. 

“I don't see this as the start of a trend. For companies that have done well, it is possible they will increase their dividends,'' said K&N Kenanga head of research Seow Choong Liang. 

Expectations of higher dividend payouts were ignited by the massive, and record, dividend announced by Malayan Banking Bhd (Maybank) on Monday – the country's largest bank declared a 35 sen interim dividend. 

Since then, and during the course of the earnings reporting season so far, a number of plantation and media companies have rewarded shareholders by bumping up their dividends, mainly because their profits have improved from a year ago. 

“Normally, shareholders will expect a higher dividend if a company does well, and continues to do well,'' said AMResearch executive director Gan Kim Khoon. 

“Furthermore, if companies think they cannot make better use of their excess cash, they might as well give it back to shareholders.'' 

Maybank, and more recently Hong Leong Bank Bhd, are said to have raised their dividends to shareholders because they cannot deploy their more-than-sufficient capital reserves and extra cash in more productive ways. 

The mammoth dividend by Maybank and an increased dividend from Hong Leong Bank would also ensure that their returns on shareholders' funds, a benchmark for efficient utilisation of capital, remain healthy. 

Public Bank Bhd had kicked off the series of large payouts among banks when it said it was paying RM300mil, the highest dividend payout in the bank's history. 

Whether other banks duplicate the move by Maybank, Public Bank and Hong Leong Bank, would depend on the health of the banks, but some analysts do not rule out higher dividends in the future, considering a number of the country's top banks are expected to post record profits over the next few years. 

Analysts believe plantation companies are the next cluster of companies that will pay higher dividend, judging by the high prices of crude palm oil and the resultant boom in the profits of oil palm plantation companies. 

They said IOI Corp was in a position to raise dividends because of the benefits of high palm oil prices. Analysts said the company need not hold back vast amounts of cash as its gearing level was manageable, and it had no immediate plans for acquisitions. 

“They have done well and the company is generating strong cashflow,'' said Seow. 

Higher profits have allowed a number of companies to raise dividends but a common trait among such companies that declared larger rewards for shareholders is the structure of their shareholding. 

“It is more the institution-owned companies that are declaring a higher dividend payout,'' said S&P investment services, Asian equities, director of research Sharon Wong. 

She also believes that the rise in dividends would not be a one-off phenomenon. 

“Companies in Malaysia that increase their dividends want it to be sustainable. They will look at their future earnings and requirements first before increasing payouts.'' 

With sentiment in equities weak as a result of external uncertainties, shareholders would be pleased with higher dividend payouts. Analysts said there were, however, various other connotations to such generosity. 

It could mean that the companies are saying there are not sufficiently attractive opportunities for mergers and acquisitions that could lead to returns such companies are comfortable with. 

“I don't think it sends a signal that there is no growth. Investors know Malaysia's prospects and this shows the maturity of the market,'' said Wong. 

The next group of stocks that could possibly raise dividends are gaming stocks, said analysts. 

Although motor companies have enjoyed a year of record sales in 2002, analysts suspect many would want to hold on to some extra cash in view of the possibility for slower sales in the immediate future, for capital requirements, and to prepare for the implementation of the Asean free trade area. 

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