Companies offering high dividends – at their own peril

Hancic, an investment and construction company in Hanoi, has announced it will pay the dividend of 550% (VND55,000/share) for 2008.

Eximbank has announced the 2008 dividend of 82.55%, including 12% to be paid in cash, and 70.55% in shares.

A lot of medium-size enterprises have also announced relatively high cash dividends for 2008. Nhi Hiep Company (NHC), a brick and tile producer, has decided to pay the dividend of 30%, not including bonus shares; Phu Thinh Garment Company (NPS) 40%; Cuu Long An Giang Import-Export Company (ALC) 35%. The list of companies offering the dividends of 10-20% has become longer, and more enterprises are paying dividends in cash than in shares.

Meanwhile, some enterprises have announced low dividends, and some have decided to cancel paying dividends. Pha Lai Thermopower Plant has announced a delay in the payment of dividends because of low profit.

Shareholders of Bach Tuyet Cotton Company do not hope they will get dividends in 2008 as the company still has unpaid debts of tens of billion VND.

Huy Nam, a securities expert, said that it is not a surprise that some enterprises will not pay dividends in 2008. He said that shareholders should be comforted by the knowledge that the leading automobile manufacturer in the world, GM, has also announced it will delay paying dividends.

Risks forecast

Obviously, what most shareholders want are dividends in cash after they had a bad business year in 2008 due to the gloomy stock market.

Pham Linh, Deputy General Director of VIS Securities Company, said that if the dividends are as high as 15-20%, while the prices of many share items have dropped to below VND20,000/share, the profit for shareholders proves to be much more attractive than bank deposit interest and other investment channels.

The director of a foreign investment fund has expressed his surprise that Vietnamese companies, which have had worse results in 2008 than in 2007, are paying higher dividends than in 2007.

Dr Le Tham Duong from the HCM City Banking University said that high dividends may make shareholders happy, but enterprises should be cautious in the context of the global economic crisis and continuing difficulties of the national economy.

According to Vincom securities company, the financial reports of Q3 of many listed companies show debt/equity ratios higher than 150%; however, some have still decided to pay dividends of more than 15% in cash. This could result in the enterprises having to access expensive capital sources if they find themselves short, which would mean their profit would significantly drop later.