Durrant Pate/Contributor 

Junior market companies on the Jamaica Stock Exchange (JSE) have exhibited varied adherence to stated dividend policies communicated at the time of their initial public offer (IPO).

NCB Capital Markets Limited has carried out an assessment of the dividend payout of 13 junior market companies listed on the JSE for more than 10 years and their adherence to their dividend policy has been mixed.

“Based on our findings, the cohort varied in their adherence to stated dividend policies and there was a strong correlation between dividend payout and the balance of profitability and reinvestment needs,” the assessment found.

It was found that on average, seven of the 13 cohort members adhered to their dividend policies over the last decade. Their average payout for the period was 33 per cent but ranged from a low of 23 per cent to as high as 56 per cent. The findings indicate that Access Financial Services (AFS) and General Accident (GENAC), two of the three financial companies in the cohort have been consistently generous with their dividend payouts. 

According to NCB Cap Market, “Their generous payouts coincided with volatile but sustained profitability and a low need for capital expenditure or reinvestment. The lower need for capital expenditure is explained by the fact that these companies had less capital-intensive operations relative to a manufacturing company, which requires more fixed assets to operate.”

Strong reinvestment needs by some companies

While low reinvestment needs are often a marker for high dividend payouts, the NCB Cap Market assessment shows that some cohorts had strong reinvestment needs, yet their actual dividend payouts still aligned with their dividend policy. The assessment cited Honey Bun, which has steadily increased its dividend payouts from 2014 to 2023. 

While Honey Bun’s capital expenditures increased at a compound annual growth rate (CAGR) of 18 per cent annually, its earnings increased by 21 per cent. The significant earnings growth has allowed the company to consistently make generous dividend payments to shareholders without compromising its expansion plans. Following a 32 per cent payout in 2023, Honey Bun recently announced a billion-dollar expansion plan to double its manufacturing capacity to meet high demand. 

Similarly, Caribbean Flavours and Fragrances (CFF) has also succeeded in increasing earnings, meeting dividend policy commitments and expanding capital expenditures. The modernisation of its production plant in 2022 to automate several processes has cost the company around J$28 billion but has been beneficial in doubling profits and sustaining a high payout ratio of 34 per cent in 2023 in line with 36 per cent in 2022. 

The data shows that although payouts have fluctuated over the last 10 years, CFF has paid out as much as 71 per cent in 2019 and averaged a payout of 45 per cent over the last five years. While several cohort members delivered on their dividend policy, NCB Cap Market research shows that six out of 13 did not adhere amid a mismatch between profitability and CAPEX. 

KLE Group, Consolidated Bakery (PURITY), Blue Power, Jamaican Teas, Caribbean Producers Jamaica and Lasco Financial Services all fell below the payout minimum outlined in their prospectuses. KLE and PURITY had no dividend payout over the 10 years. KLE’s earnings declined at a CAGR of eight per cent over the 10 years due to lower revenues coupled with relatively high operating costs resulting in seven years of loss over the period. 

Purity recorded four years of loss and weakening profits, primarily due to higher operating costs. NCB Cap Market reports that soap manufacturer, Blue Power “also did not adhere to its payout range expressed at IPO amid erratic earnings performance and limited capacity for large dividend payouts due to ongoing expansion. Some of these plans include the acquisition of property, and investments amounting to $124.50 billion in plant and machinery to facilitate the expansion of its soap business.”

In a similar vein, Jamaica Teas, another manufacturer is in expansion mode with a 23 per cent average annual increase in capital expenditure and has announced plans in March 2024 to expand its Temple Hall location. Lasco Finance, the only financial company among the six, has also failed to meet the minimum payout on average over the last 10 years based on a relatively flat CAGR of three per cent in net profits and reinvestment needs to roll out new products and services.

However, despite a fall in net profit in 2023, Lasco Finance increased its payout.