Running On Empty?

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads in 5 minutes or Less.

Topics this week:

• Fuel famine: The familiar case of 'hurry up & wait!' at gas stations

• A look at dividends and how Ethiopian companies handle them

Thanks for reading!

Running On Empty? Join The Line

ነዳጅ ማደያ መሰለፍ is becoming a national pastime…

 …and no one is enjoying it.

 Long lines and frustrated faces paint the picture of a fuel shortage that's causing chaos on the roads and headaches for businesses nationwide.

Most recently, stations around Addis have attracted queues of Sino trucks, Toyota Hilux’s and Mini buses’. 

This is because diesel has in turn, for reasons unknown, become the scarce commodity (ቤንዚን seems to actually be easily attainable at the time of writing).

 As subsidy programs have slowly been scrapped while the country grapples with foreign currency shortage and high demand, it doesn’t seem to deter the appetite of the consumer who basically uses fuel prices as a way to adjust the price of everything else (ሽንኩርት 60 ብር ሲገባ!)

Take food for example. Here’s an example of the domino effect: 

• Transportation inputs such as fuel and diesel go up which costs more to operate the machines that process the food.

• They then are loaded up on trucks that run on fuel, which in turn drives up the transportation cost

• Then this in turn puts a financial burden on the merchant who has to buy at a higher price and move that cost over to us consumers at the time of selling.

I know what you’re going to say “It shouldn't take a genius to know that all we need is fully electric powered trucks and machinery - it’s working for road cars!”. Well, dreams don’t always come true that quickly.

Big reforms and financing (with much needed subsidies) will be required to reach such a feat. But with the government’s laser focus of considerable EV (Electric Vehicle) adoption in sight, it might actually be a reality sooner than later.

 If you’re the type that has sleep insomnia because you can’t choose what sector you want to invest in in the future, try to come back to this article.

Fully electrified and automated gas stations could be a great option to look into - oh the irony!

Dividends…what are they and why do they matter?

Dividends are a crucial aspect of investing that can provide investors with a steady stream of income.

In a nutshell, they are generally payments made by a company to its shareholders out of its profits or reserves. በመገናኛ ብዙሃን በተለምዶ የትርፍ ድልድል የምንለው ማለት ነው

Consider your salary, you work hard and in exchange you get paid for your efforts. Well dividends are not the result of hard work or a trade off for your time, instead they are the result of discipline, timing and good decision making.

Dividend payments are typically made on a regular basis, such as quarterly or annually, and are a way for companies to share their financial success with their shareholders.

 Here are a few key points to understand how dividends work: 

• Companies that pay dividends are typically well-established and profitable, as they have excess cash that they can distribute to shareholders.

• Earnings Per Share (EPS), which shows the amount of profit a share, usually capped at 1000 Birr value, produces (FYI, Zemen recorded 320 Birr return on a 1000 Birr investment in 2023) is a great indicator of the attractiveness of a dividend paying company. The higher the EPS, the more attractive the investment በመሠረቱ

• Companies in Ethiopia usually payout all of the remaining profit to shareholders: board members decide to park the money in an account called ‘Retained Earnings’. That money is usually paid outright afterwards

• Shareholders can choose to reinvest their dividends back into the company through a dividend reinvestment plan or receive them as cash payments.

 Example of dividend-paying Ethiopian industries

 In Ethiopia, industries such as banking, insurance, and breweries are known for paying dividends to their shareholders. 

Some examples from 2023 include: 

• Bank of Abyssinia’s dividend payment which was at 29%

• National Insurance Company of Ethiopia paid out 37%

• Zemen Bank’s dividend yield was at 32%

Investing is still a nascent practice in Ethiopia. With the Ethiopian capital markets on the horizon, upskilling on anything related to money management and allocation can give anyone an edge for the years to come. 

 Why not start with dividend paying companies?

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