UBA Plc released its 2015 Half Year results showing profit after tax profits rose 40% to N39.9 billion. The results on a quarter on quarter basis also showed pre-tax profits rose 12% to N20.6 billion signifying an across the board improvement in earnings.
UBA followed up this result with a first ever half year proposed dividend of 20 kobo per share which in no small measure surprised many investors. To most investors a 20kobo dividend declaration is likely to cost the bank about N7.25 billion or 23% of current profits. Ironically, this half year dividend is double the 10 kobo dividend per share paid earlier this year for 2014 FY results. Combined, UBA has paid about N11 billion in dividend payments this year alone.
Despite the good news of paying an interim dividend investors are wary about the motives behind the decision to pay. Is UBA trying to tow the line of GTB, Access, Stanbic IBTC, Zenith (just started paying interim dividend too) or simply just has too much cash they give out.
To further complicate investors assessment of the decision , UBA in January raised about N11.5 billion in rights issue citing the need to shore up its capital. It appears thus that the entire amount raised is now being paid back as dividend this year alone.
Why raise N11.5 billion in equity at N3.50 only to pay out nearly the same amount within 6 months as dividends. Couldn’t it have been better to withhold embarking on a costly rights issue and hold back dividend payments for at least one year. Instead UBA has gone on to declare an interim dividend double what it paid as dividend earlier in the year.
One now wonders, is there another reason why UBA declared interim dividends? Should investors be wary or just simply accept the largess?