Multiplier Effect Of High Dividend Payout

Last update: 02/11/2017

By M. Saraswathi

KUALA LUMPUR, Nov 2 (Bernama) -- Dividend payment by big cap companies like Tenaga Nasional Bhd (TNB) goes beyond rewarding shareholders and the depositors or unit trust holders of institutions with holdings in the listed entity.

It has a multiplier effect that benefits the nation, as a whole.

Listed on Bursa Malaysia in 1990, TNB started paying its first dividend in 1994. Since then, it has been rewarding its shareholders with cash returns on a regular basis through the declaration of interim and final dividends each financial year.

Last Thursday, the company announced a record dividend payout of RM3.5 billion for the financial year ended August 31, 2017.

The unprecedented move boosted sentiment for TNB shares a day after the announcement, lifting it to an all-time high of RM15.46 per share.

Blue chip companies in Malaysia rarely declare such high dividend payout, so the market rejoiced, pushing TNB shares up until profit-taking set in last Friday.

When big cap stocks declare high dividends, they send out signals of healthy cash flow and thus, the financial strength to steadily increase dividend payout from year to year.

"We will continue to maximise shareholders value through consistent and sustainable dividend payout," that was the commitment made by TNB Chairman Tan Sri Leo Moggie.

As a guide to the uninitiated, under Sections 131 & 132 of the Company Act 2016, a company may only make a distribution of dividend to shareholders out of available profits, if it is solvent.

Also, the company needs to be solvent immediately after the dividend distribution is made. Therefore, TNB had to pass the solvency test to be able to pay dividend.

TNB's ability to pay the high dividend will positively impact retail shareholders and the major local institutional investors, alike.

For the record, as of August 2017, the Employees Provident Fund (EPF) has 11.70 per cent equity stake in TNB, Permodalan Nasional Bhd (11.08 per cent), Retirement Fund Incorporated (5.49 per cent) Tabung Haji (1.83 per cent) and Lembaga Tabung Angkatan Tentera (0.15 per cent).

Based on publicly available records, up to December 2016, EPF had 14.81 million members, of which 6.88 million members were active.

PNB had 12.8 million account holders, as of August 2016 while Tabung Haji depositors totalled 9.1 million at the end of last year.

These institutions, as well as, other Malaysian unit trust funds, which carry TNB in their portfolio, stand to gain when TNB declares high dividend.

And, surely, the public at large, as the account holders of these institutions, are in a good position to gain from higher earnings to be reaped by these funds.

With better liquidity, these institutions are able to consider higher dividends and bonus payouts for their account holders or depositors.

Another point to note is the fact that one source of revenue for the government is its investments in government-linked companies.

Through Khazanah, which holds 28.2 per cent equity in TNB, the government stood to earn a significant amount of revenue which in turn will be injected back into the economy.

This eco-system will drive private spending and stimulate the local economy, similar to what many of the 2018 Budget proposals aim to achieve.

The reach and impact of higher dividend will widely benefit the people in line with the government's aspiration to achieve strong economic growth and wealth which is equally distributed among Malaysians.