More than one billion euros in cash is lying in the accounts of leading Croatian companies, yet a large portion of shareholders typically receives meager, and often no dividends at all. The justification for such practice has been a point of contention for years between some shareholders, particularly from pension funds, and the management of large domestic companies.
After AZ pension fund requested the payment of the entire last year’s profit of Čakovečki mlinovi, 856 thousand euros, in the form of dividends at the end of July, the latest such example appeared at the beginning of last week. In the counterproposal of the company for managing pension funds PBZ/Croatia osiguranje for Saponija’s general assembly, it is requested that from 2.9 million euros of last year’s net profit, 1.45 million be allocated to retained earnings, and 1.46 million euros be paid out as dividends.
The management has a diametrically opposite stance, proposing in the call for the assembly on August 29 that all 2.9 million euros be allocated to ‘other reserves of the Company’. PBZ/CO pension fund stated in the explanation that according to the management’s proposal, there is no reasonable return for shareholders considering that the detergent manufacturer from Osijek has a strong balance sheet and a positive operational result. The example of Saponija clearly shows the established practice of a large portion of Croatian companies when it comes to dividend policy and overall cash management.
Pockets Full, but No Dividends
After a loss in 2019, Saponija has been operating positively from 2020 to 2023 and has retained, or intends to retain, a total of 13.7 million euros in those three years. Retaining profits has overall ‘pumped up’ the item ‘other reserves’ in the company’s balance sheet at the end of June this year to 25 million euros. Let’s also mention 6.3 million euros in the item ‘retained earnings’, 119 percent more than at the end of last year, and almost three million euros in cash in the bank and cash register. In other words, Saponija has twice as much cash as PBZ/CO is requesting for dividends.
Saponija is not, of course, the only company with pockets full of cash. Data from half-year financial reports show that 21 companies from the Crobex index held 1.4 billion euros in ‘cash in bank and cash register’ on the asset side at the end of June. On the liability side, the item retained earnings reached a staggering three and a half billion euros. Although the majority are financially quite stable, the payment of generous dividends – with honorable exceptions – is not the first choice for a large portion of Croatian companies. This is also shown by the data that ten companies from the narrower Crobex10 index, according to mid-August data, offer a dividend yield (the ratio of the dividend amount to the stock price) of a meager 2.6 percent. Why is this important? Although the prices of Croatian stocks, as indicated by the Crobex index, have jumped by 21 percent in the last year, investors value dividends more because they provide a more stable return from that type of investment.
An example that it can be done differently does not need to be sought far. Slovenian companies have announced an average of 40 percent higher dividends for this year, which has raised the dividend yield within the SBITOP index, which also has ten components, to 6.2 percent. The three companies with the largest weights in the index (Krka, Nova ljubljanska banka, and Petrol) have double-digit growth in dividends per share in 2024. However, this does not mean that they will completely drain their financial reserves: NLB has paid out only 40 percent of the profit earned in 2023, and Krka 60 percent. Petrol, on the other hand, has paid out the entire profit. Meanwhile, the price growth of Slovenian stocks has been even more pronounced than ours – the SBITOP has jumped by 32 percent in a year. In our surroundings, good dividends are not only harvested in Slovenia: Romanian stocks offer 5.4 percent, and Polish slightly more than five percent in dividend yield.
Why is this the case and why holding cash, not only in theory but especially in practice, is not a particularly wise move for a company, read in the new printed and digital edition of Lider.
