JAMAICANS taking more interest in investing in stocks should pay attention to this bit of news as the Financial Services Commission (FSC) has proposed new guidelines for the distribution of dividends by securities dealers as part of its changes to the sector.

The proposed guidelines, which were published on August 4, seek to set a new defined framework for the declaration of dividends. This includes the eligibility criteria for the declaration of a dividend or other distributions, and retained earnings available for distribution. Part of this would include a reconciliation calculation of retained earnings for dividends to be declared.

“The purpose of these guidelines is to facilitate greater transparency and a standardisation of methodology in relation to the dividend distribution process. The guidelines set out the maximum criteria and requirements for securities dealers prior to declaring dividend payments or other distributions. These guidelines shall apply to all securities dealers licensed under Securities (Amended) Act 2014,” said the FSC consultation document.

Under the new guidelines, dividends — whether cash, property or stock — shall be paid out of unrestricted retained earnings of any securities dealer. If the dealer has zero, negative retained earnings, or an accumulated deficit, the dealer would be unable to declare a dividend. As a result, a dividend or distribution could only be declared from the existence of surplus profits from the operations of the business. Only realised profits or gains could also be distributed as cash dividends.

While securities dealers have audited financial statements which outline the earnings of the entity, the net profit is affected by things such as changes in accounting policy, foreign exchange gains and losses, share of income from associates and joint ventures, and other line items which might not be actual cash items. Thus, the actual earnings or profits of a securities dealer which could be used for a dividend would be the net income for the year, adjusted for unrealised items.

If a securities dealer pays out an interim dividend, the payout ratio shouldn’t exceed 50 per cent of their dividend policy. Any dealer which would want to declare a dividend exceeding that payout ratio would need to request special approval from the FSC to declare and pay the dividend or distribution. Securities dealers would also need to follow an affirmation process to declare a dividend including resolutions from its board, the latest audited financial statements, a report from their external auditors on the maintenance of accounting, other records and internal control systems.

Each securities dealer would need to establish a dividend policy which takes into account potential losses, the long-term growth plans, and other factors of the business. If a dealer fails to comply with these new guidelines the FSC could take enforcement actions against the firm. Dealers currently have until August 22 to submit their comments on the consultation paper, with all securities dealers to implement the new guidelines within three months from an effective date.

The latest securities dealer to declare a dividend was Mayberry Investments Limited which paid $0.30 per share on July 31 with the payout totalling $360.34 million. Mayberry’s available second-quarter report is a consolidated report which reflects their interest in Widebase Limited and Mayberry Jamaican Equities Limited. Mayberry shareholders approved the reorganisation of its business last month whereby the securities dealer business would fall under a financial holding company while the other two subsidiaries would be owned directly by Mayberry Group Limited.

Barita Investments Limited has not declared a dividend in 2023 but it paid $2.48 in October 2022, which totalled $3.03 billion. Sagicor Investments Jamaica Limited paid $3.26 or $1.80 billion in dividends to Sagicor Group Jamaica Limited in 2022 while JN Fund Managers Limited paid $50 million to JN Financial Group Limited in 2022 as well. VM Investments Limited received no dividend from VM Wealth Management Limited in 2022 relative to the $252.08 million received in 2021. Scotia Investments Jamaica Limited paid at least $1.04 billion to Scotia Group Jamaica Limited in 2022 based on the audited financial statements.

According to the FSC’s March 2023 report, there were 37 licensed securities dealers with 29 whose primary activities were in dealing financial securities. Total assets for the sector marginally rose on a year-over-year basis to $837.9 billion , h capital declining to $130.5 billion. Funds under management for the sector declined 10 per cent to $1.53 trillion as asset prices went down over the year while interest rates rose.

Total revenue improved four per cent to $9.7 billion for the March quarter, with net profit coming in 33 per cent higher at $3.2 billion. The sector’s return on equity was 2.4 per cent, with capital to risk-weighted assets or capital adequacy at 22.7 per cent. Capital to total assets was at 14.9 per cent, which was above the benchmark of six per cent.