Companies scramble to postpone, cancel dividends

As the impact of a largely shuttered economy due to the Covid-19 pandemic became clearer and the country entered an unprecedented lockdown, at least 11 JSE companies elected to either postpone already-declared dividends or cancel them altogether.

The deferred or cancelled dividends to shareholders – including withholding tax due to the South African Revenue Service (Sars) – total R3.65 billion. It must be noted that this includes only changes to dividends that were due to be paid in recent weeks. It does not include results reported of late where directors elected not to declare any dividend.

All but three of the companies have elected to postpone their dividends, mostly to the next reporting period, and will make a decision on payment at that stage. However, African property counter Grit Real Estate elected to postpone its payment by just four weeks, to April 30.

It says the board “has taken into account the potential for disruptions caused by Covid-19 in the domestic African financial markets in which Grit operates, a lack of dollar liquidity in Mozambique, the uncertain impact of the pandemic and the expectations of longer time frames associated with central bank processes and moving cash balances to Mauritius”. It notes that it expects no further postponement.

Other property funds EPP and Hyprop have postponed their distribution payments totalling nearly R2 billion to later in the year. Texton Property Fund cancelled its outright.

Redefine Properties, which will report its interim results on May 4, announced preemptively on March 23 that its board had “resolved to defer its decision on a dividend payment for [that period] until the release of its results for the year ending August 31 2020, which is expected to be on or about November 2 2020″. Redefine has been especially hard hit this year – its share price is down 71% since early January.

By contrast, Growthpoint on March 20 confirmed that it would pay its interim dividend of 106c per share on Monday, April 6. But, like most property counters, it has withdrawn its previously-provided dividend guidance for the full year.

Motus, unbundled from Imperial in 2018, was the first industrial company to announce an impact on its already-declared dividend. On March 24, it said: “Given the uncertainty as to the duration and extent of the impact the Covid-19 virus is having and will continue to have on commercial activities in South Africa and internationally, the board considers it prudent and in the best interests of the company and all its stakeholders to preserve the company’s financial liquidity.”

‘Precautionary measure’

It noted that it “continues to maintain its ability to meet its current solvency and liquidity obligations”. However, “as a precautionary measure to provide Motus with additional financial flexibility and bolster its liquidity in an extraordinary time of uncertainty, the board has resolved to cancel the payment of the interim dividend”.

Construction group WBHO said a day later that it would “withdraw” its dividend declared earlier in the month: “In these uncertain conditions the protection of cash reserves is deemed necessary by the board.” But it says it “remains committed to consider the continuation of the dividend history in future financial periods, once circumstances permit”.

Chemicals and explosives group AECI said on March 27 that it had “stress-tested multiple solvency and liquidity scenarios” and that “no loan covenants were breached in any of those scenarios”.

But it said the board considered “it prudent and in the best interests of the company and all its stakeholders to postpone the payment of the dividend that was scheduled for Monday, April 6″.

“The board believes that the postponement of the dividend payment, amounting to R448 million, together with the company’s undrawn committed banking facilities of approximately R2 400 million, will position AECI to remain well capitalised through these uncertain times.”

Metair Investments made reference to “these abnormal times” in its decision to postpone the dividend declared just two weeks earlier. It has already cautioned the market to expect a decrease in earnings of at least 20% for the six months to end-June, given the impact of Covid-19.

Restaurant franchisor Spur Corporation put its dividend, totalling R71 million, on ice last week. It says: “This precautionary act will give the company greater balance sheet flexibility as the situation develops over the coming weeks and months.” It also confirmed last week that it was not charging its franchisees any franchise fees for the second half of March and the whole of April due to the nationwide lockdown.

Franchise and marketing revenue in South Africa for the six months to end-December was R310 million. Thus, the monthly income from these streams would be around R50 million. Across the one-and-a-half month period that it is supporting franchisees, this lost revenue is almost the amount originally declared as a dividend.

Investors should surely not expect this to be simply “deferred” to October, as the company states. This will certainly be reviewed once the impact from Covid-19 can be quantified.

Despite many of its divisions remaining trading during the lockdown, food producer Libstar said on Thursday it would postpone its dividend until the next reporting period “in light of the uncertainty as to the duration and extent of the impact that Covid-19 may have on the operations within the markets in which [it] operates”.

The ‘food service channel’ comprises about 18% of its revenue and the shutdown of restaurants and fast food outlets has impacted demand. This is partially offset by its ‘retail sales channel’ (60% of revenue), where it has “experienced increased demand from its customers, especially in the week preceding the lockdown”. However, the group “expects demand to reduce as government’s preventative measures take effect in the coming weeks”.

Thus far, the impact of Covid-19 has mostly been seen in share prices across the board, as investors panic and rush to safety (cash). Markets have been badly rattled.

The decisions by these 11 companies to cancel or postpone dividends that had already been declared is highly unusual, but not unexpected given these unprecedented times.

Investors would be smart not to expect normal dividend declarations for several if not most of the companies reporting results in the coming weeks.

Still, the real damage to dividend flow will be seen later this year. That’s if many listed companies actually make it through this crisis in one piece.

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