Will the dividend policy of equity market issuers become the next crisis casualty?

Payment of dividends made by companies floated at the equity market to its shareholder members has always been a source of profit, not very high, especially for long-term investors who keep the shares in their portfolio. Many issuers prefer to distribute a portion of the company’s one-year earnings as dividends to recorded shareholders at a certain date.

“In general, the yield of dividend distribution is not very high, as this depends on the price of shares listed at the stock market. For example, if an investor bought stocks from a certain company at 1 leu/share, if he holds the respective shares at the record date, and the respective company grants a dividend/share of 0.1 lei, then the annual return of a dividend of investment made is 10%”, said Alexandra Suciu (photo), analyst at brokerage company Intercapital Invest.

Even if in the last year the quotations of companies listed have collapsed, a significant part of them has maintained a constant pace of activity development, most of them registering mounting outcomes on a year-by-year basis.

In the chart made by Intercapital Invest shows the potential 12-months moving average of dividend yield, in case the payment date will be similar to ex-date. The analysis also shows the companies who distributed dividends in 2007, the evolution of earnings and net profit in H1 2008 from a year ago.

Issuers will feel the effects of the crisis later

Although starting second half 2007 the global economies have been hit by the financial crisis, there are companies that marked a significant raise of overall revenues and of net profit in this period.
According to data provided to analysis department of Intercapital, some of these companies are Alro Slatina, Alumil Rom Industry, Oil Terminal, Santierul Naval Orsova, Petrom, Socep, Transelectrica or Transgaz.

“Despite the financial crisis, there are fields of activity that have been advantaged in this period, due to growth of oil price, and energy, namely oil sector (Petrom), or electricity (Transgaz and Transelectrica). I expect the companies to keep on reporting positive outcomes of activity for entire year 2008, considering that the effects of this crisis will be more visible in 2009, because of the 6-7 months downshift between Romania and European Union”, Intercapital Invest’s analyst added.

Alexandra Suciu says there is the possibility that many companies will no longer practice the same dividend policy, preferring to use the obtained profit as source of investment to back up activities in this period of international financial crisis.

Translated by Camelia Oancea

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