Dear ALL

Over the years, payment of dividends to shareholders of quoted companies in Nigeria has been fraught with many administrative bottlenecks leading to rising incidences of unclaimed dividends.

This perennial problem has generated a lot of debate which has consequently attracted the concerns of all stakeholders in the Nigerian equity market, especially the investors. We believe these concerns are not misplaced as dividends are a major attraction to investors. While the amount of dividend declared by a company may influence investors’ perception of the company, the importance of the actual cash received by investors has assumed great significance.

Apart from providing income to some category of investors, the delay in dividend receipt has made equity financing unnecessarily difficult and expensive to others particularly when an equity investment is funded by a bank loan upon which interests accrue on an ongoing basis.

Therefore, on Monday June 16, 2008, the Securities and Exchange Commission (SEC) launched the electronic payment system (e-dividend) in Lagos, Nigeria. The e-dividend launch is the result of several months of deliberation by various stakeholders such as the Nigerian Stock Exchange, the Central Bank of Nigeria, Nigerian Inter-Bank Settlement System, capital market operators and shareholders’ associations amongst others.

E-dividend refers to the payment of cash dividend into a shareholder’s nominated bank through a direct credit rather than issuing a cheque or warrant. The commission took the step with a view to stemming the observed occurrences of market abuse, improving the efficiency of the capital market and enhancing the level of investors’ confidence. Also, the initiative is expected to minimize cases of unclaimed dividends, eliminate dividend loss-in-transit and enhance shareholders’ ability to access and utilize their dividends immediately.

To ensure the success of the initiative, respective shareholders are expected to meet their implementation modalities i.e. issuers are to meet payment obligations immediately after declaration of dividends at AGMs, registrars are to upgrade their ICT infrastructure while stockbrokers – and registrars – are to include shareholders’ data and information on share transfer forms and banks are to authenticate shareholders’ signature.

Hitherto, the old dividend payment warrant system was characterized by numerous problems, which include
1) irregular signatures by applicant with multiple applications for an offer;
2) inability to identify the next of kin of shareholders that die intestate;
3) inefficiency of the postal system;
4) deliberate act to deny investors their benefit through various schemes by companies that lack liquidity to pay;
5) observed reliance on the part of registrars and their related businesses on the float provided by unpaid dividends as working capital and;
6) poor logistics management and inadequate data on the part of shareholders.

Going forward, this latest initiative is expected to enhance transparency and give investors immediate access to cash dividend once corporate action is paid by companies. However, the e-dividend payment system only addresses the cash side of corporate action.

There is therefore the need for the regulators to enforce an equal adherence to the direct lodgment of certificates into the Central Securities Clearing System (CSCS), the clearing house of the Nigerian Stock Exchange (NSE), as registrars and companies still issue physical certificates to investors regardless of the existing e-allotment procedure introduced in 2006.


Courtesy:
Tola Odukoya | Investment Research | UBA Global Markets | Nigeria| adetola.odukoya@ubagroup.com ( Phoshare Info)