When I look at the things happening around us, I cannot help but read between the lines to appreciate the lessons that are so abundant around us.
I sold my MTCC shares this year and bought Bank of Maldives shares this year because it made business sense to me. But I could not believe it when the returns I got for my investment in the Bank of Maldives was just 22% of what I could have earned had I retained my shares in MTCC instead of selling them to buy shares of Bank of Maldives. From my readings, I was made to understand that a dividend yield is related to the company’s assest values and net margins and the reliability and consistency of its future growth.
When the unthinkable happened I spoke to a Director of the Bank of Maldives, who explained to me the rationale of the Board’s decision. They had declared a dividend of 150 Rufiyaa last year. At the time a share was worth nearly 2000 Rufiyaa in the market (Maldives Stock Exchange). The Board also decided to issue bonus shares which gave each share a total of 36 shares. The Shareholders happily agreed, but decided that a share should be valued at 146 Rufiyaa instead of 100 Rufiyaa proposed by the Board. This meant that the worth of one share held by a shareholder jacked up to 5040 Rufiyaa. This was a good thing for everyone at the time.
Then this year the Directors decided to declare a dividend of 10 Rufiyaa per share which was being traded at over 250 Rufiyaa, which is a 4% return on share value. The Directors argued that they were giving 360 Rufiyaa for what they had given 150 Rufiyaa last year. That is true, but then it is so because their decision last year did not have adequate foresight. Or else, it was a deliberate decision to ensure that the market will offer a disincentive for trading of Bank of Maldives shares thereby giving an unexplained advantage to the existing Public Shareholders.
When I spoke to a friend with a finance background Thursday evening, did I realize that the decision of the Board of BML last year could have been a deliberate attempt to secure an unfair advantage to the then existing Shareholders and an exclusivity. That also meant that a person who got a share for just over 50 Rufiyaa when the shares were split and bonus shares issued could sell it with a 400% gain. What a decision!
Now the trading of BML shares is effectively discouraged and the market disabled! Did you wonder how this was possible?