Kathmandu. Lately, banks and financial institutions have been announcing dividends. Institutions operating in different sectors are proposing to distribute dividend to the shareholders from the profit of the last fiscal year 2077/78.
Most of the microfinance companies have declared bumper dividends. Some of the companies have already closed the book for the purpose of attending the meeting, while some have even held the annual general meeting and passed the proposed dividend.
Overall, dividends of most MFIs are more attractive than commercial banks. With the announcement of this attractive dividend, the attention of investors in the secondary market has been increasing on the shares of microfinance. And, the share price of the company concerned seems to be increasing.
Of the microfinance institutions that have declared dividends so far, six have been book-closed. And, the meeting of some has been completed. Among the microfinance listed in Nepse, Asha Microfinance, Sadhana Microfinance, Deproc Microfinance, Gurans Microfinance, Civil Microfinance and NIC Asia Microfinance have been book closed. At the same time, investors who buy shares of these institutions will not get the dividend of the last financial year.
As soon as a company declares dividend, the attention of investors will reach the shares of that company.
There is an arrangement to adjust the share price of the company after bonus and right shares. Price adjustment is based on the market price prior to book closing. And, after the price adjustment, the share price of the institutions will be reduced and the first trading of the next day will start from the adjusted price.
Investors, on the other hand, seem to have incurred losses due to such price adjustment. In some companies, even with the addition of bonus shares, the assets do not appear to have increased. In the case of a company that pays cash dividends, the shareholder’s wealth seems to have increased and so has the cash profit.
For example, Asha Microfinance has proposed to distribute 25 percent bonus (excluding cash) shares from last year’s profit. After the dividend offer, i.e. before the book close, the share price of the company was Rs. 1899 per share. The assets of those who invested 100 lots in the shares during this period were Rs. 189,900 based on the share price. However, after the proposed 25 percent bonus share, the share price of the company has come down to Rs. 1519.2 per share. Adding 25 percent bonus shares given by the company, according to the adjusted value of the company, the property of the investor comes to Rs. 189,900, which is equal to the book close price maintained before the bonus shares.
Similarly, Sadhana Microfinance has already held a general meeting by declaring dividend. The meeting has passed a resolution to distribute 25 percent bonus in addition to cash to the shareholders from the dividend of the last fiscal year. Before the book close, the share price of the company was Rs. 1739 per share. After 25 percent bonus share, the share price of the organization has been adjusted to Rs. 1415.2 per share. If an investor has bought 100 shares at the book closing price, his total investment is Rs. 173,900. Now, by adding 25 lots received in bonus shares, the property of the investor has become Rs. Which is only Rs 3,000 more than invested.
However, there is no price adjustment for the proposed cash dividend of banks and financial institutions. In this case, the investors will not incur any loss as the share price of the institution will not decrease.
For example, NIC Asia Microfinance has proposed to distribute 5.41 percent cash dividend to the shareholders from the dividend of the last fiscal year. The book of the organization has been closed on November 8. The last trading of the organization was on November 7 at Rs. Due to the announcement of cash dividend, the share price of the company has not been adjusted and after the book close, the first transaction of the company has been at Rs. 1301 per share. Which is Rs. 15 more per capita than the previous day. If an investor had bought 100 shares of NIC Asia Microfinance before the book close, he would have been able to get 5.41 percent cash dividend, but after the book close, his assets would have increased by Rs.
In the market, the company that gives more bonus shares is considered good. Investors also expect that the company they have invested in would have given them bonus shares rather than cash. However, the above example shows that cash dividends are more profitable than bonus shares given to investors by the company. This is because giving bonus shares reduces the share price of the organization after book close, while giving cash dividend does not reduce the share price of the company. As the supply of shares of the company will not increase after paying cash dividend, there is a possibility of further increase in the share price.