ISLAMABAD: Pakistan Stock Brokers Association (PSBA) has approached the Securities and Exchange Commission of Pakistan (SECP) against the listed companies which are hoarding their profits and not paying dividends to their shareholders.
Zahid Latif Khan Vice Chairman PSBA told Business Recorder that the association has expressed its deep concerns about the companies that are listed on the Pakistan Stock Exchange (PSX) and are not paying dividends to their shareholders which is detrimental to their interests, and the functioning of the economy as a whole.
This hoarding of profits can lead to decreased investment in the stock market and undermine investor confidence. In this regard, the association has written a letter (dividend payouts) to Akif Saeed SECP Chairman for taking action against the listed companies
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Zahid Latif Khan, who is also Chairman ISE Tower REIT Management Company Limited. [Formerly Islamabad Stock Exchange], explained that the primary objective of investing in shares is to earn a return on investment. Hence, it is essential for companies to pay dividends to their shareholders regularly in order to ensure fair distribution of profits to them.
This practice is inconsistent with the Securities and Exchange Commission of Pakistan Act, 2015, where the SECP, being a corporate regulator has to protect the interest of minority shareholders. Hence, the association believed that it has now become crucial for the Commission to take note ensuring that companies listed on the stock exchange follow ethical and responsible practices and work to promote shareholder value.
This proposal is also in line with international best practices, whereas, many countries have issued Corporate Governance Codes that require listed companies to maintain a certain dividend payout ratio, Vice Chairman PSBA maintained.
These codes provide guidelines and standards for the distribution of profits to shareholders and aim to ensure that shareholders are treated fairly. Also, in some jurisdictions, companies are required to pay a minimum dividend or face penalties. This encourages them to maintain a regular dividend payment schedule to avoid any legal complications.
In view of the situation, the association has requested the SECP Chairman to intervene and introduce policies/codes mandating companies to pay dividends to their shareholders, and that guidelines are established to ensure fair and consistent dividend payments. This will also help re-establish trust between companies & shareholders and strengthen the financial market, Zahid Latif Khan added.
Copyright Business Recorder, 2023