By NKIRUKA NNOROM

Chief Executive Officer of the Nigerian Stock Exchange (NSE), Mr. Oscar Onyema, has expressed concern over the rating of stocks based on their dividend payment history, saying that it inhibits institutional investors from investing in growing sectors in the stock market.

He said there was need for the Federal Ministry of Finance (FMF), Securities and Exchange Commission (SEC) and National Pension Commission (PENCOM) to address the anomaly by effecting a review in the Investments and Securities Act and PENCOM Act to exclude that portion that imposes the inhibition.

Doing this, according to him will increase the number of companies that would qualify for collective investment schemes and Pension Fund Administrators’ (PFA) investment, respectively.

He said, “The Nigerian capital market has, over many decades, developed a peculiar focus on dividends as the basis for the measurement of the “good performance” of a company. While the Investment and Securities Act, ISA, 2007 maintains that Collective Investment Schemes may invest in ordinary shares of public limited companies “with good track records, having declared and paid dividends in the preceding years”, PENCOM’s rules for listed companies stocks that qualify for PFA investment preclude all companies that have not paid a dividend within the last five years.”

“This narrow definition of a quality company prevents our largest institutional investors from investing in the fastest growing sectors of the Nigerian economy, as companies operating in cash intensive sectors typically reinvest their profits to meet growth demands and to remain competitive,” he added.

Vanguard recalls that the NSE chief had in a forum said that the NSE has categorized the quoted companies based on their dividend payment policy, saying that those that pay over 50 per cent their earnings should be regarded as income stocks, while those that pay less or do not pay at all are regarded as growth stocks.

“We have the highest dividend yield in the continent and it is abnormal. It is abnormal because if you pay all your earnings in dividend, how do grow the company,” he queried.

“It is not uncommon in Nigeria to see investors or members of shareholders’ group fighting companies for failure to pay dividend. I think instead, a company should be punished if it promises to pay dividend and fails to do so and not the other way round,” he emphasized.

Continuing, he said, “Just because you pay dividend does not mean that you are healthy as a company. So, we are proposing that some of these rules need to be addressed