Sometimes stock market brings pleasant surprises. For example, board of directors of a public company, which long ago (maybe never before) did not pay dividends, suddenly gives a recommendation to send a certain amount to pay investors.
This usually comes as a complete surprise to most market participants and leads to a sharp increase in quotes by tens of, and sometimes hundreds of percent in a matter of days. That is, investors, who purchased the issuer's securities earlier, there is an opportunity to earn not only on dividends, but also on a sharp increase in the capitalization of the company itself against the backdrop of positive news.
Is it possible to predetermine, that the business is planning to resume (or start) practice of dividend payments? Or you can buy shares of such a company on the eve of the dividend announcement only by accident?
Certainly, there is no crystal ball, which would allow a private investor, without insider information, with a guarantee 100% predict such an event.
However, they do not say in vain, that there is no smoke without fire. There are several indirect signs at once., which will help an active investor to determine the issuer in advance, which may start paying dividends in the future.
Must warn, that a match on several or even all points is not a recommendation to buy the shares of such a company and will not be able to protect against an erroneous forecast or incorrect conclusions.
Management statement
There is an easy way to find out, that the company plans to please shareholders with payments, is to hear the relevant statement of top managers. Sounds corny, but, Happens, really works.
sometimes it happens as follows. Someone from the management or controlling shareholders in an interview or at a press conference suddenly announces, that the business plans to make dividend payments again, but the market reacts sluggishly to this event, apparently, not quite believing what was said. Then this statement is confirmed by the fact - the board of directors makes a recommendation to the meeting of shareholders to approve payments, and only then the quotes begin to rise.
An example is Nizhnekamskneftekhim PJSC. Due to the construction of a new olefin complex, the company temporarily suspended payments to its shareholders based on 2016 And 2017 yy. However, already in July 2018 G. General Director of PSC "TAIF" (the company is the controlling shareholder of PJSC "NKNKh") Stated , that as early as next year, NKNKH could start paying dividends again.
And so it happened. IN 2019 G. The board of directors of the company declared huge dividends following the results of 2018 G., which, at the date of the news release, gave a return on ordinary shares of about 32%, and for privileged - about 47%. Quotes of ordinary and preferred shares of the issuer after the publication of recommended dividends for the day increased by 44% And 70% respectively.
Completion of a consolidation or investment program
Another reason for payments may be the completion of a large-scale investment program or the successful implementation of an M&A transaction. (M&A). When a business completes an important stage in its development, then part of the released cash flows can begin to be distributed in the form of dividends.
An example is the history of the group "M. Video — Eldorado». IN 2018 G. company "M". Video acquired one of its largest competitors, Eldorado, for 45,5 RUB bn., and then there was a process of consolidating the assets of two large retail chains on a single legal and IT platform. Naturally, that the preparation and implementation of this deal required enormous resources, and it was decided to temporarily refuse to pay dividends.
However, already in 2019 G. the integration process has been completed. And then management announced an interim dividend (for the first time since 2016 G.) after nine months 2019 G. for total cost 6 RUB billion. Of course, on this news quotes rose sharply.
The presence of retained earnings of previous years and money in the accounts
The desire of top managers and controlling shareholders alone is not enough, important, that the financial position of the company allows it to pay dividends.
That is why it is so important, assessing the likely amount of future dividends, first of all study the financial statements of the business.
Two important questions, the answers to which can be found in the financial statements of the issuer.
- Does the business have net profit for the reporting period and retained earnings for previous years?
- Does the company have the money to, to pay shareholders?
For example, I propose to evaluate the dynamics of retained earnings and cash of Raspadskaya PJSC. The coal company returned to dividend payments in 2019 G. after a multi-year hiatus.
Rice. 1. A source: consolidated financial statements of PJSC "Raspadskaya" according to IFRS. 1. A source: consolidated financial statements of PJSC "Raspadskaya" in accordance with IFRS
Rice. 2. A source: consolidated financial statements of PJSC "Raspadskaya" according to IFRS. 2. A source: consolidated financial statements of PJSC "Raspadskaya" in accordance with IFRS
note, how fast with 2016 G. the business had an increase in retained earnings in the past years (although still in 2015 G. recorded an uncovered loss in the amount of 2,27 RUB bn.) and how sharply the amount of cash in the company's accounts increased right on the eve of the announcement of dividend payments.
The presence of money in the accounts does not yet say, that the business will pay dividends, but may indicate, that there are resources for this.
Approval of a new dividend policy
Another important marker could be the approval of a new dividend policy. The very fact of, that new rules for declaring and distributing dividends are being developed and approved, indirectly indicates management plans to start or resume the practice of paying shareholders. By the way, The Board of Directors of PJSC Raspadskaya also approved a new dividend policy at the beginning 2019 G., that is, on the eve of the resumption of payments.
Sometimes the opposite happens. First, the company starts to pay dividends according to unformed principles, and only then these principles are enshrined in the new dividend policy. This happened to the largest producer of strong alcohol PJSC "Beluga". In June 2020 G. shareholders for the first time approved dividends in the amount of 30% net income under IFRS, and in September the board of directors of the company approved a new dividend policy , which fixed the level of payments in the amount of at least 25% from net profit.
Purchase of shares by top managers and affiliates
When evaluating an issuer, you can also look at the purchases and sales of shares by affiliates. Who, how not they, better than others aware of the situation within the company and the prospects, including possible dividend payments.
However, such transactions may also occur for personal reasons and not be directly related to, what's going on in business.
