How Safaricom bounty will be shared

The lion’s share of dividends from Safaricom’s record Sh21 billion profit will go to two institutions: Vodafone and the government.

The UK-based telecommunications company will take home Sh3.2 billion while Treasury will pocket Sh2.8 billion. Vodafone holds 40 per cent stake in Safaricom through its local subsidiary, while Treasury has 35 per cent.

Safaricom announced on Tuesday it would pay Sh8 billion dividends to its shareholders, out of which Kenyan retail investors will get Sh687 million.

The public, who bought shares in the company through an initial public offering of May 2008, will contend with a quarter of the cake valued at Sh2 billion.

Vodafone’s stake was raised after it snapped up 10 per cent stake initially owned by Mobitelea Ventures. Mobitelea’s ownership raised a storm locally as its owners identities remained mysterious. The company was forced to exit in two phases —first selling five per cent in 2008 and clearing the balance last year.

The mobile phone services giant declared a dividend of 20 cents per share on Wednesday after announcing a profit of Sh20.9 billion before taxation for the full-year ended March 31, 2010.

While this is double what it paid the previous year, it has not gone down well with local retail shareholders, who accuse the company of being mean with dividend.

But investment analysts have defended the dividend payout, saying it is fair compared to its share price of about Sh5 and the huge volume shares. “The shares are just too many,” said Mr John Kirimi, the executive director of Sterling Investment Bank. “At 40 billion, it is hard for Safaricom to pay a big dividend.”

Retail or individual investors were allocated 21 per cent of their share applications (420 shares) during the IPO that was oversubscribed by more than 500 per cent as many Kenyans sought to own a piece of the cellphone firm, one of Kenya’s success stories.

Last year’s dividend meant those who got minimum allocation received a dividend of Sh42. If they still hold the shares, they will earn Sh84.

The disappointment of tiny allocations was extended to the Nairobi Stock Exchange where the price has remained depressed, falling below its IPO price to Sh3.20 in the first year of trading.

Some of the 817,943 retailers have consequently sold out to cut their losses.

According to latest figures from Safaricom, the company now has 753,608 local retail investors who own 3,437,650,680 shares that will earn them Sh687.5 million in dividend if they hold on till it’s paid.

Some 24,021 local corporates, including Vodafone Kenya, control 34,315,985,679 shares worth Sh6.9 billion in dividend.

Foreign investors, both individual and corporate, will pocket a combined Sh450 million. Mr Kirimi said the investors who bought into Safaricom will have to contend with the reality of low dividends.

He figured that for the region’s most profitable company to even pay one shilling dividend, profits must top Sh40 billion.

“Long-term shareholders should not lose hope because they will benefit from capital gains (rise in share value) because the company is stable and growing,” said Mr Kirimi.

As a fraction of the IPO price of Sh5, he said, the dividend “is not small.”

Companies usually retain some profits to finance growth and what goes to shareholders is purely a discretion of the board of directors. The dividend policy thus varies from company to company.

But in Safaricom’s case, analysts are putting up a strong case for more retained earnings to fight off growing competition and expand its services. “To sustain and grow revenues,” he said, “they have to retain substantial amounts.”