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Time to mandate dividend policy
| 14 Apr 2017 00:30
CHINA’S Securities Regulatory Commission (CSRC) is coming down hard on stingy listed companies. If they don’t pay cash dividends to shareholders, they risk being punished, says a recent report.
The CSRS' rationale is simple – paying cash dividends is a basic way to reward investors and the ultimate source of a stock’s intrinsic value. The commission feels listed companies should pay up if they can afford it.
Bursa Malaysia doesn’t have rules to compel listed companies to pay decent cash dividends based on net profits. In fact, under the Companies Act, companies don’t pay dividends if they suffer losses.
But many profitable companies do not even pay high dividends despite being cash rich or making good profits. Their dividend payout ratio to net profit is often less than 40%.
In fact, many listed companies do not even have dividend policies to pay a percentage of their net profits as cash dividends.
A cursory check reveals that companies with dividend policies of between 70% and 80% are Amyway (M) Holdings Bhd, DiGi.Com Bhd, Gas Malaysia Bhd, Maxis Bhd, Westports Holdings Bhd, Berjaya Sports Toto Bhd and Boustead Holdings Bhd. Their dividend yields range from 2.7% to 6.3%. Listed Real Estate Investment Trusts (REITs) distribute at least 90% of their incomes to enjoy tax-exempt status. With more than 900 listed companies, these numbers are pathetic.
It is not only a dividend policy on profits that warrants attention. Some listed companies with huge cash piles are also stingy in distributing them. Again, listed companies are not mandated to distribute a certain portion of their cash as dividends. Of course, they need to strike a balance between paying dividends, maintaining growth and maximising share prices.
It’s time we have a standard policy to govern dividend payments by listed companies. The Securities Commission could consider mandating listed companies to pay, say at least 40% of their net profits as dividends. They can also be compelled to ensure that their retained earnings are not more than 50% of their paid-up capital.
Such rules will make our listed companies more attractive to investors. And by paying good dividends, minority shareholders can decide what to do with their excess cash.
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