Alin Brendea, Prime Transaction: "The local stock market remains attractive for dividend investors"

The local stock market remains attractive for dividend investors, offering returns at the level of bank deposits and even above this level, says Alin Brendea, the Operations Director of the Prime Transaction brokerage company, in an editorial entitled "Dividends versus bank interest on the Romanian stock market".

Alin Brendea wrote: "When an investor buys a stock, he hopes to gain by placing capital in a good business that will develop and generate growing profits. If the prerequisites are met, the company in question will be more desired by investors - its value will increase on the stock market - or it will have the opportunity to distribute dividends, generating a cash flow for the shareholder - the dividend.

Of the two options for materializing a successful investment, the distribution of dividends is more predictable, therefore less risky and implicitly more attractive, especially for retail investors. In recent years, the Romanian stock market has offered attractive dividend yields. It looks like the trend will continue this year as well.

The main category of dividend-paying companies is that of companies in which the state is the majority shareholder. By law, these companies are required that at least 50% of the distributable profit be allocated to dividends (there may be situations in which companies ask the state to waive this rule, in cases of urgent and significant investment needs).

Recently all six major BSE companies (included in the BET index) published their BVC proposals for the current year. In these documents we find very interesting information related to profitability expectations and future dividend distributions.

State-owned BVCs have a long tradition of being conservative, sometimes very conservative. In many years the results of the companies were clearly above the initial forecasts. As such we can consider the figures in the above tables as rather minimal.

Looking at the dividend distribution rate from the net profit, we notice one company - Transelectrica, which proposes in BVC not to distribute dividends in the following years, as others go towards the minimum levels: Romgaz, Nuclearelectrica and Transgaz. It remains to be seen what will be the decision of the majority shareholder - the Romanian state, regarding these proposals, in the Shareholders' Meetings that will be held in the spring.

For the purpose of synthesis we have chosen to look at the profits (and dividend distributions) of the past year and the next two years, the period we can credit with satisfactory predictability. Considering the same distribution rate (proposed in the current BVC) we calculated the total returns of the next three years, which the holding of those shares would generate.

The benchmark for those targeting dividends in the stock market is bank interest. This year interest rates started to enter a slight downward trend. 6% is an eligible annual interest, currently, for a bank deposit. Assuming annual interest rates of 5% and 4% for 2025 and 2026 (I would call it a realistic scenario), the bank interest on a deposit set up with an annual maturity, over the entire period, would be 15% (I did not compound these yields, at as with dividends to ensure a good comparison). The difference between the dividend and the bank interest is positive both for Hidroelectrica (strong) and for Romgaz, Conpet and Nuclearelectrica.

In any stock market, large-cap companies included in the main index that generate dividends above bank interest are considered rather rare and considered opportunities from a stock market perspective. Apart from the state companies analyzed above, there are also private companies with a solid and predictable dividend policy at BVB. In the foreground are OMV Petrom (SNP), which has just confirmed this feature, through the recently announced preliminary results, Banca Transilvania, which has consistently remunerated investors significantly, most often through free shares, and Fondul Proprietatea - a true record holder of distributions to shareholders .

The local stock market remains an attractive market for dividend investors, offering returns at and above bank deposit levels. That is precisely why the period we are going through, when the issuers will publish the preliminary results for 2023 and give the first indications regarding the dividends distributed from last year's profit, is awaited with interest. At the end of the current month we will have a first confirmation of the level of dividends we can expect in the spring season", wrote the director of Prime Transaction.