IF you are a stockholder of profitable companies listed on the Philippine Stock Exchange that regularly distribute dividends, either in cash or in stock, you are lucky. You may even be luckier if the board of the companies of which you have been a loyal stockholder declares special dividend because keeping excessive amounts of retained earnings would be a violation of the rule imposed by the Securities and Exchange Commission.
Try examining the financials of JG Summit Holdings Inc., the listed holding company of businessman John Gokongwei Jr. and his family. As of September 30, it had retained earnings of P145.68 billion, which stood more than six times the paid-up capital of P22.015 billion.
For its public stockholders to appreciate the amount and the ratio in relation to the capital, they should be familiar with the SEC rule on retained earnings.
What does this rule say? For you to understand it, you should seek the guidance of SEC Chairperson Teresita Herbosa because “prohibiting companies from keeping ‘surplus profits’ in excess of 100 percent of paid-in capital” has a number of exceptions that make it difficult for the public to understand.
Based on this rule, JG Summit may be violating the rule but you may not know this unless the SEC so declares. That’s why it is important for the public to visit www.sec.gov.ph from time to time to familiarize themselves with the rules that govern listed companies, particularly retained earnings.
The public should not hastily prejudge JG Summit for the amount of its retained earnings, which, in the first place, is based on consolidated financial reports for the first nine months of 2014. As the rule also provides, a holding company declares dividends based on “parent” retained earnings—that amount is, its share from the net profits declared as dividend by subsidiaries and associates that have already been remitted to it as their mother company.
For a much clearer illustration of “how” dividend happens, Due Diligencer analyzed the financial filings of Globe Telecom Inc.
Globe Telecom is distributing P18.75 per share dividend to holders of 132.731 million common shares as of November 25 but which will be paid on December 11. The dividend, totaling P2.489 billion, will be taken from the company’s unrestricted retained earnings of P6 billion.
As of September 30, Globe reported a total of P10.782 billion retained earnings, including the “undistributed net earnings of consolidated subsidiaries and accumulated equity in net earnings of joint ventures, etc.”
The Zobel-controlled telecom company has already paid its common stockholders a total of P7.466 billion – P37.50 per share on March 20 and P18.75 per share on September 4.
P75 per share dividend
Singapore Telecom International Pte. Ltd. owns 62.646 million Globe common shares, or 47.2 percent. Ayala Corp., the listed holding company of the Zobels, holds 40.352 million Globe common shares, or 30.4 percent of outstanding common shares.
Globe Telecom’s generous dividend declaration this year totals P75 per share, including the latest P18.75 per share. Multiplied by 132.731 million outstanding common shares, the dividend would amount to P9.956 billion.
The two top stockholders would get a total of P7.724 billion, or 77.589 percent: P4.698 billion to SingTel and P3.026 billion to Ayala Corp. due their respective common shareholdings.
But if you have invested in losing companies, you start to fear losing money. Chances are the recovery could be remote based on what you read in financial reports. Just take a look and the numbers could either be retained earnings or deficit. If it is the latter, this should make you worry more.
How long does it take for a bankrupt company to get out of the hole? No one knows because of the processes involved in rehabilitation, which are many and complicated. (This needs a separate story, which Due Diligencer is in the process of researching.)
In the meantime, Filsyn Corp. is one example of a losing company. As of Sept. 30, it had accumulated a deficit of P1.733 billion. A company posting on the website of the Philippine Stock Exchange showed it had settled P1.2 billion debt with Chinatrust via dacion en pago, or by paying the bank with 30-hectare property in Santa Rosa City. Despite said payment, Filsyn is too far away from getting back on its feet again.