Nepalese businesses favor cash dividends in downturns over bonus shares during bull markets.
Companies that drew investors’ attention by declaring bonus shares as the market climbed have emphasized cash dividends this year as the market falls. A few businesses that had previously declared dividends have now revealed that they will distribute cash dividends derived from last year’s earnings.
Companies distribute dividends in the form of cash dividends or bonus shares. Companies prioritize bonus share distributions in Nepal when the stock market is trending higher while prioritizing cash dividends when the market is trending downward.
Mutual funds have continued to declare cash dividends and deposit them in investors’ accounts this year, just like they do every year, while other businesses have continued to do the same. Recent corporate actions have demonstrated that many companies prefer cash payments when making a dividend announcement. The Hydropower Company has stated that it will only distribute 5.265 cash dividends, including tax, for the first dividend of this year. Since 2074/75, the corporation has been awarding bonuses and cash dividends after issuing the right shares in a 1-to-1 ratio in the years 2073/74. The company offered a 10% bonus each year.
The top life insurance provider, Nepal Life Insurance, has also announced just a cash dividend this time. This time, Nepal Life has announced a 15.7895 percent cash dividend. The company had distributed a mix of bonus shares and cash dividends in previous years. The dividend on bonus shares used to be significant as well. The company began regularly disbursing dividends in 2068/69, and that year also saw the payment of the most significant dividend—a whopping 126.31 percent. Cash dividends totaled 70 percent and 56.31 percent.
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The lowest bonus shares of 14 percent were awarded by Nepal Life in the year 2076.77, although this time, the company only issued a cash dividend of 15.7895 instead of the usual 25 to 50 percent. Nepal Life has announced simply cash as a payout for the first time.
Banks have also resumed the succession of cash dividend announcements by Hydropower and Bima. Among the banks, Citizens Bank International announced a cash dividend of 9% of the profit from 2078–1979, including tax. The bank has only declared a cash dividend twice out of all the dividends released. The bank had earlier, in 2069–2070, issued a cash dividend of 15%. The most significant and lowest annual dividends were declared in 2074–1975, at 21.05 and 5.263 percent, respectively.
The recently established Nepal Infrastructure Bank (NIFRA) has also declared a cash dividend from its Annual profit. The company has announced a 4.2105 percent cash dividend. The company announced an 8.42 percent dividend earlier in 2077–2078, consisting of a 0.42 percent cash dividend and 8% bonus shares. The largest IPO-issuing company in Nepal’s capital market history is NIFRA. Through an IPO, NIFRA raised Rs 8 billion.
According to knowledgeable investors, the Nepal Rastra Bank policy should be another important factor for businesses to prioritize cash dividends this year. The Central Bank had given banks and financial institutions instructions to place more emphasis on bonus shares than cash dividends over the previous two fiscal years. Companies were not allowed to provide cash dividends that were more than 30% of the total dividends. Because of this, even though companies prioritized bonus shares in the previous two years, the central bank revised the dividend policy this year and permitted banks and financial institutions to distribute bonus shares and cash dividends following the organization’s requirements. Two financial firms, Citizens Bank and Nepal Infrastructure Bank, announced cash dividends due to the Central Bank’s openness.
NIFRA had also planned to distribute cash dividends last year but was compelled to do so after the Central Bank rejected the cash dividend.
So far, companies that have announced dividends have not simply announced cash dividends. Some people have defined dividends as a combination of cash and bonus. In addition to a 25% bonus and 5% cash from the prior year’s profit, Nepal Lube Oil has announced a 30% dividend. Similarly, Arun Kabeli Power Limited declared that it would grant shareholders 10% bonus shares. The Nepal Reinsurance Company has also declared a 0.2632 percent cash dividend and a bonus of 5%.
To reach the paid-up capital requirement of 5 billion rupees established by the Insurance Committee without merging with anybody else, Asian Life and National Life have also declared that they will, this time, grant bonus shares. Asian Life Insurance currently has a paid-up capital of 2 billion 90 million, and the company has also declared a tax-deductible 14.5 percent bonus share and 0.2632 percent cash dividend. It appears challenging for the company to reach the capital requirements specified by the insurance committee using bonuses solely. The company will use the right shares as its final tool for raising funds.
Similarly, National Life Insurance is available to businesses that may readily raise cash without merging. The company has a paid-up capital of 4 billion 351 million rupees and has declared a 15 percent bonus and 0.789 percent cash dividend for the 2077–2078 fiscal year. The company’s paid-up capital will increase to 4.64 billion rupees after the dividend declaration. It appears that 359 million rupees won’t be enough, even after the dividend.