Online Reporter
Big Business Ideas-Stephene Chikozho
HOW much a company pays in dividends or reinvests in the business is decided according to growth prospects and the health of the balance sheet.
A dividend is the annual payment to shareholders that most businesses manage each year.
It might amount to a 3 percent return on the sum invested, which would make it comparable to the interest a saver might receive from a bank deposit.
When growth is high, or the balance sheet is weak, companies should retain cash for reinvestment.
When the balance sheet is strong, or growth is slowing, companies should pay dividends to shareholders.
Directors must balance the need for reinvestment in the business with shareholder returns.
After calculating the year’s profit, a company’s directors can choose whether to pay a dividend to shareholders or reinvest the sum.
Invest or pay out?
Dividend payouts are entirely the gift of the directors.
Their decision is simple: What proportion of after-tax profit should be paid in dividends, and the higher the company’s growth prospects, the greater the incentive to keep money within the business.
Slow-growing companies should, therefore, pay out a high proportion of profits in dividends, whereas booming organisations are more likely to keep the cash within the business.
There is no safer source of capital than retained profit: It does not need to be repaid, nor does it require the payment of interest.
Another factor to consider is the health of the company’s finances. If it is weak, profits should be retained; only when the balance sheet is strong should generous dividends be paid to the shareholders.
Key insights
Investing in African companies that pay dividends can offer unique opportunities for income and growth. Here are some practical examples from various sectors across the continent:
1. Standard Bank Group (South Africa): As one of Africa’s largest financial services groups, Standard Bank has a strong track record of dividend payments. The bank’s diverse operations across the continent provide a stable income stream, supporting regular dividends even in challenging economic times.
2. Vodacom Group (South Africa): Vodacom, a major telecommunications company, is known for its reliable dividend payouts. With operations in several African countries, Vodacom’s consistent revenue growth supports its ability to pay dividends, appealing to income-focused investors.
3. Zenith Bank (Nigeria): Zenith Bank is one of Nigeria’s leading banks, known for its strong financial performance and dividend payments. The bank’s robust earnings and prudent management practices enable it to maintain a healthy dividend yield, making it attractive to investors seeking regular income.
4. Nestlé Nigeria: As a leading player in the consumer goods sector, Nestlé Nigeria has a reputation for consistent dividend payments. The company benefits from strong brand recognition and demand for its products, enabling it to distribute a portion of its profits as dividends.
These examples illustrate how African companies across various sectors offer dividend opportunities, combining the potential for income with exposure to the continent’s dynamic growth prospects.
While individual African entrepreneurs may not directly offer dividends in the same way that publicly traded companies do, many have built successful businesses that contribute to economic growth and offer investment opportunities.
Here are some notable African entrepreneurs and their ventures that have made significant impacts:
1. Njeri Rionge (Kenya): As a co-founder of Wananchi Group, Njeri Rionge helped build one of East Africa’s leading internet service providers. Her work highlights opportunities in Africa’s growing technology and communications sectors.
2. Ashish Thakkar (Uganda): Ashish Thakkar established Mara Group, a diversified conglomerate with interests in technology, real estate and manufacturing. His entrepreneurial journey showcases the potential for growth and investment in diverse African markets.
3. Isabel dos Santos (Angola): Isabel dos Santos, once considered Africa’s richest woman, has made significant investments in various sectors. Her ventures highlight the opportunities for strategic investments across industries in Africa.
These entrepreneurs exemplify the diverse opportunities available in Africa’s business landscape.
Investors interested in African markets can explore partnerships, equity stakes or other investment vehicles associated with these successful enterprises.
Stephene Chikozho is the chief executive officer of Africa Business Inc, a dynamic and influential network dedicated to fostering collaboration, innovation and success for businesses in Africa. He writes in his personal capacity. You can follow him on social media (Instagram, Facebook, X, LinkedIn, Threads) WhatsApp +263772409651 or email ceo@africabusinessinc.com
