Investment Research and Sovereign Risk Analyst at JMMB, Leovaughni Dillion, says investors may need to adjust their expectations about dividend payments, especially from companies in a growth phase.

Dillion was responding to comments during the latest edition of Taking Stock about Derrimon Trading’s lack of dividend payments despite positive results.

Derrimon Trading is one of Jamaica’s largest distributors of consumer goods. The company also operates the Sampars and Select Grocers retail locations and owns several subsidiaries including Caribbean Flavours and Fragrances and Woodcats International.

In 2022, the company acquired majority stakes in Spicy Hill Farms, which manufactures canned Ackee and Callaloo and Arosa Limited, a meat processing company.

According to Derrimon’s consolidated results, the company recorded a 3% increase in revenues for the 2022 financial year, closing the year at $18.4 billion.

“The company has been doing a lot. They did an APO in January 2021 and since then they’ve done a lot of acquisitions that have helped to boost the profitability of the company,” Dillion said.

“Its gross profit margin, which is usually around 19% was at 25% for 2022. So, the quality of sales in terms of controlling costs and growing revenue was pretty good for them,” he said.

Dillion explained that given the company’s aggressive growth and acquisition strategy, it is understandable why they would decide to hold on to cash instead of paying it out as dividends.

“When it comes to dividends, there’s two things companies can do with the cash they have on hand. They can pay it out as dividends or they can reinvest it,” he explained.

“When you have a company like Derrimon, that’s in the process of doing a lot of acquisitions and is growing fast, it requires cash. So the question is do you pay the cash now or do you reinvest it and build the business so that in the future you can pay way more dividends?,” he added.

He said that withholding dividends in the short term is a strategy that many businesses use to help build out the company and increase profitability in the long run.

“So even if they do pay a dividend it might not be that significant from a dividend yield standpoint because they’re in a growth mindset,” Dillion said.

He recommended that investors who are more interested in high dividend-paying stock look for blue chip companies that are not in growth mode.

Overall, the research analyst said that Derrimon’s performance so far has been good.
“I think all of these acquisitions, them raising money and putting it to good work plus the other expansion plans that they have in the works will lead to a steady growth in revenue,” he added.