by BALA AUGIE
Only eight out of over a dozen insurance firms have paid dividends out of earnings to shareholders in 2016 as poor liquidity position and recurring losses by some firms undermine pay-out.
Financial services companies often seek to distribute as much excess capital as possible to shareholders in the form of dividends.
A cursory look at the 2016 audited financial statement of these firms show cumulative dividend stood at N4.13 billion as at December 2016 while dividend pay-out ratio (dividend as a percent of net income) range between 33 percent and 62 percent (See Table).
Meanwhile combined net income the aforementioned firms surged by 103.30 percent to N24.13 billion.
It is generally believed in corporate finance world that a more profitable company or one with increased and stable earnings pay a high dividend to stockholders.
However, the aforementioned principles do not hold water in Nigerian insurers.
Aiico Insurance’s net income surged by 759.66 percent to N10.23 billion as at December 2016 but its pay-out ratio was just 1 percent. It even cut down on payment as total dividend reduced by 20 percent to N138.60 million.
Analysts say firms pay out less from earnings or reduce payments in order to finance projects with a positive net present value.
In other words, such a policy gives them the leeway for meeting working capital requirement.
However, AxA Mansard Insurance increased dividends to stockholders as total pay-out spiked by 150 percent to N525 million in the period under review, despite a proposed capital investment.
According to a recent fling at the Nigerian Stock Exchange (NSE), AXA Mansard said it is in the process of partnering with International Finance Corporation (IFC), a member of the World Bank Group and a couple of other Companies on the possibility of investing in a hospital project.
Continental Reinsurance and Custodian and Allied Insurance increased payment to owners of the business as total dividend increased by 16.93 percent and 99.87 percent to N1.45 billion and N1.05 billion as at December 2016.
Both firms recorded the strongest dividend Yield or DY (percent of dividend to market price). Continental Re has a DY of 11.11 percent and a payout ratio of 47 percent while Custodian and Allied a DY of 7.02 percent and a payout of 20 percent. (See Chart)
This study shows that insurance firms quoted on the NSE seldom pay dividend to owners as battered earnings and poor liquidity position remains a stumbling block.
For instance, Guinea Insurance, Goldlink Insurance, Universal Insurance, International Energy Insurance, Cornerstone Insurance, Staco Insurance, Sovereign Trust Insurance and Mutual Benefit Insurance have not paid dividend in 3 years as negative retain earnings erode shareholders value.