Investing in shares is a high-risk venture that offers the potential for higher returns, appealing to those willing to embrace the challenge. Investors typically earn in two ways: through capital gains from an increase in share value and via dividends, which are portions of a company’s profit distributed to shareholders.
While dividends are often lower and not the primary reason investors enter the market, their significance cannot be overlooked, especially in markets lacking a robust investment culture. Stable dividends indicate a company’s financial health and can foster trust in environments where confidence is typically low.
The prevailing theory suggests that companies in mature stages of their life cycle tend to pay higher dividends, having exhausted their growth potential. Conversely, younger companies, regardless of size, often reinvest profits to fuel future growth, deferring dividend payments.
The pre-crisis landscape
The Belgrade Stock Exchange’s transition can be divided into two phases. The first phase, abruptly ended by the global financial crisis, saw significant ownership concentration and a boom in company valuations fueled by an influx of capital into a relatively small market.
During this period, few companies paid dividends, as investors focused on consolidating ownership to resell shares at inflated prices. Consequently, dominant shareholders often prioritized personal financial benefits over profit distribution.
The 2008 financial crisis, which erased 75% of the stock market’s capitalization, left the market in need of confidence to prevent long-term damage. If companies had paid dividends, it could have softened the sell-off of equity securities post-crisis. Instead, scandals and bankruptcies further tarnished the perception of stock ownership.
Populist initiatives and market changes
A populist initiative aimed to distribute shares from major domestic companies, historically generous with dividends, was intended to enhance market participation. However, due to inflated claims regarding share value, the project lost significance once its political purpose was served. Many companies failed to list, while some went bankrupt.
Despite these challenges, this initiative led to the listing of the Oil Industry of Serbia (NIS), which quickly became a market leader. NIS established a new corporate culture, prioritizing dividend payments since 2013, distributing 25% of profits to shareholders.
As NIS matured, investors anticipated an increased dividend payout ratio typical of mature companies. However, instead, shareholders were surprised by a donation to the Serbian government in 2023, raising concerns about future dividend increases.
Current market dynamics
This year, companies within the Belex15 index will distribute decent dividends, albeit lower than last year due to NIS’s reduced payout. Despite this, NIS still offers a high dividend yield of around 7.5%.
Iimpol Seval, an aluminum rolling mill, led the way with an impressive dividend yield of 11.2%, despite weaker operations compared to the previous year. Jedinstvo from Sevojno also pleased shareholders with a 57% increase in dividends, yielding nearly 9%. Metalac maintained its dividend, offering a solid yield of 5.1%.
Dunav osiguranje distributed half of its life insurance segment profits, yielding around 5% for shareholders, a modest consolation given the previous year’s stock fluctuations following a distribution of free shares to employees. Technogas had the lowest yield at 2.5%, attributed to a significant rise in share price after ownership consolidation efforts.
Conclusion
The evolving landscape of dividends and investment in Serbia highlights the complexities and challenges investors face. As companies navigate growth and shareholder expectations, the role of dividends remains crucial, particularly in fostering confidence in the market.
