Tough times loom for shareholders of Fast-Moving Consumer Goods (FMCGs) as companies grapple with financial constraints, resulting in a decline in dividend payouts. In the 2022 fiscal year, over 71 publicly traded companies across various sectors disbursed a staggering N1.5 trillion in dividends, indicating robust financial health.
However, the narrative shifted in the 2023 fiscal year, marked by a bleak dividend payout landscape, particularly among FMCGs.
Out of the 15 FMCGs listed on the NGX Consumer Index, only seven managed to distribute dividends totaling N128.53 billion for the 2023 fiscal year. This represents a stark contrast to the previous year’s performance, where 12 out of 15 companies disbursed a total dividend of N183.28 billion, reflecting about a 30% decline.
Among the FMCGs that failed to distribute dividends for the 2023 fiscal year were Cadbury, Dangote Sugar, Nigerian Breweries, Nestle, PZ Cusson, and Unilever. Additionally, those that managed to distribute dividends experienced a notable decline in payout ratios, signaling underlying financial challenges.
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The inability to pay dividends or a decrease in payout ratios often indicates financial challenges such as declining profitability and increased financial obligations. A review of the financial reports for the 2023 fiscal year reveals constrained financial performance characterized by losses, leading to retained losses and erosion of shareholders’ funds.
Specifically, 10 FMCGs collectively recorded substantial foreign exchange losses of N894 billion, reflecting a significant year-on-year increase. Additionally, aggregate interest expenses surged by 223% year-on-year to N222.984 billion, driven by currency devaluation and escalating interest rates.
This trend is expected to persist into 2024 for some companies, including Cadbury, International Breweries, Nigerian Breweries, and Nestle, which are unlikely to pay dividends due to accumulated retained losses. However, BUA Foods stands out with impressive earnings growth and substantial retained earnings, indicating a likelihood of sustaining dividend payouts.
The fluctuating nature of dividend payments underscores the importance of diversification for investors. Recognizing the impact of reduced dividend payouts on share prices, investors are advised to diversify portfolios across various sectors and asset classes.
Conversely, FMCGs must strengthen strategies to mitigate the impact of foreign exchange losses and high interest expenses to safeguard shareholder interests and ensure long-term sustainability. Striking a balance in the capital structure and seeking enduring sources of inputs through backward integration becomes imperative amidst rising input costs.