A review of the dividend payments of South African listed companies during the period 1977-2011

Headnote

ABSTRACT

Very little research has been done into the propensity of South African companies to pay dividends. This study attempts to address this limitation. In line with the findings of international research, the number of South African companies paying dividends decreased substantially over the research period (1977 - 2011). Companies that have never paid dividends were shown to be young and small companies and tended to be clustered in the resources, financial and cyclical services sectors. The median and mean dividend payout ratios of the entire sample decreased over time. The strongest negative trends were observed in the basic industries and resources sectors of the Johannesburg Securities Exchange (JSE). Earnings and dividends proved to be highly concentrated among the largest listed companies, and significant differences were observed between sectors. The findings are meaningful for investors (clientele) who are seeking dividends.

INTRODUCTION

Although cash dividends have historically made up a substantial proportion of long-term investors' total returns, recent studies reflect a declining propensity to pay cash dividends (Fatemi and Bildik, 2012; Von Eije and Megginson, 2008). Few studies of the dividend payments of companies listed on the Johannesburg Securities Exchange (JSE) have been published. This study, which aims to address this gap, focuses on the propensity of JSElisted companies to pay dividends during the period 1977 to 2011, by exploring the characteristics of companies that have never paid dividends (hereafter called 'never payers'), trends in dividend payout ratios (DPRs), and the extent of earnings and dividends concentration on the JSE. The differences in DPRs across JSE sectors are also investigated. The 1161 companies making up the sample include both listed and delisted companies.

THE PROPENSITY TO PAY DIVIDENDS

At the turn of the 21st century, Fama and French (2001: 3) published a study that showed that the percentage of US industrial companies paying cash dividends decreased from 66.5 per cent in 1978 to 20.8 per cent in 1999. Since then a number of researchers have investigated the phenomenon of 'disappearing dividends'. Of these, three recent studies deserve special mention. Fatemi and Bildik (2012: 662) evaluated the dividend payment patterns of listed companies in 33 countries (including South Africa). Consistent with Fama and French's approach (2001: 6), they excluded utilities and financial companies from their sample,...