Up to 70% per annum. The most profitable Russian stocks
Forbes analyzed the stock returns for 2018 for all the companies included in the Mosbirzhi index (includes shares of the largest Russian companies). In 2018, the largest total return to shareholders of all securities came from Tatneft (69% on ordinary shares and 65% on preferred), Novateka (66%) and Surgutneftegaz (65%). Two factors coincided – a good growth of quotations of these companies during the year and dividends comfortable for shareholders recommended by boards of directors.
The lowest total income, with a minus sign, was attributable to securities of Mechel (-51%), Magnit (-43%) and Lenta (-38%).
Retailers have low returns due to the fact that the return on past investment in development has decreased and new costs are required, explains Alexander Losev, head of Sputnik-Capital Management. At the same time, the purchasing power of the population is falling, and when it begins to grow, it is not known what makes the prospects for investors in these securities vague. Mechel has its own story related to paying off debts to large creditors.
Tatneft and Surgutneftegaz’s good profitability ratios are determined by generous payments for preferred shares, some of which are in the hands of their employees, says Losev. “In fact, this is an analogue of the social package, which, together with company employees, can be obtained by minority shareholders who have bought securities on the stock exchange. In addition, these oil companies pay good dividends on ordinary shares, ”he adds.
As for Novatek, the company is at a stage when most of the costs of drilling new wells and launching projects have already been completed, now Arctic LNG-2 is in process, and operating costs in gas fields are usually lower than in oil fields , and now the company is able to improve its dividend policy, says Losev.
Investors have two strategies for working in the stock market – either betting on a rise in the price of paper or on good dividends, says Anna Lakeichuk, senior analyst at ITI Capital. In the Russian market, minority shareholders more often rely on the second strategy – the fact is that it is very difficult to predict stock quotes due to sanctions threats, initiatives of the authorities (such as the Belousov list), weak economic growth and various black swans, ”says Alexander Losev.
In addition, ⅔ the weight of the MICEX index are exporting companies that often focus on free cash flow and profit in dividend payments. The weakness of the ruble, foreign exchange earnings at ruble costs and high commodity prices are now creating a favorable situation, says Losev. “But this does not always happen; profit is volatile, as is the cost of resources on the foreign market, as are exchange rates, ”he says.
If you focus on profitability from dividends, then you should choose those companies for which the transparent structure of dividend payment, prescribed in the charter, is a specific share of net profit or cash flow, gives asset management Svyatoslav Arsenov, Da Vinci Capital Asset Manager. In 2018, securities of the metallurgical complex — Severstal, MMK, Norilsk Nickel — showed themselves well, but in no case can one judge by the results of last year about the profitability for an investor for next year, Arsenov warns. The group of metallurgical companies should continue to pay good dividends in 2019, but their financial result strongly depends on world prices for metals, which reached a peak in 2018 and may go down, the expert notes. In addition, in the summer of 2018 there was a story with the “Belousov list”, after which companies will have to increase their investment costs, he recalls.
In any case, the investment portfolio should be diversified so that the investor then does not have to experience disappointment from the “successful” sector of the economy that is being bet on, concludes Losev.
Dividends of state-owned companies
State-owned companies, in particular those working in the oil sector, are hard to predict the amount of dividends due to their traditional dispute with the Ministry of Finance, Arsenov points out. The department of Anton Siluanov insists that the level of dividends of all state-owned companies should be at least 50% of net profit under IFRS, but in practice such dividends are not always paid.
“If the holder of a controlling block of shares cannot influence the decision of the management of the joint-stock company in matters of dividend payments, then either something is wrong in the corporate governance procedures of a particular company, or there is no will and desire of the main shareholder (in this case, the state) something to do, ”concludes Losev.
True, there are precedents when the Ministry of Finance wins the struggle for dividends. For example, back in April, the Gazprom Management Board recommended paying dividends at the level of 10.43 rubles per share, and a month later it changed the recommendations to 16.61 rubles.