A high dividend payout by the Employees Provident Fund may discourage contributors from moving their funds to other funds, analysts say.
According to Ratings Agency Malaysia chief economist Yeah Kim Leng, this is because at 6.15 percent, the dividend paid out is on par to many approved equity unit trusts in the market.
“The dividend rate was a pleasant surprise and higher than expectations, considering government bonds and fixed deposit return rates of around three percent…Less people will shift to unit trusts (due to this),” he said.
According to a fund manager, the high dividend coupled with lower risk associated with EPF is also an attractive combination for contributors.
“On average, most funds performed well in 2012 but EPF is safer. For example, in 2008, EPF had positive returns (paying 4.5 percent dividends) when other funds tanked,” he said.
The 2008 general election had caused volatility in the market and the impending general election, he said, is seeing a jittery start to 2013.
Is it sustainable?
EPF’s performance will also be affected by global market conditions, he said, as 15.7 percent of investments are exposed to overseas markets.
“Can it sustain the dividends? We have to wait and see,” he said.
For Yeah, EPF returns in 2012 have justified its dividend payout for the year but its sustainability hinges on whether the economy can continue to grow at a rate of 5-6 percent.
“The timing of the dividend payout have led some to link it to the elections, but the dividend was based on their performance. Plus the market was quite encouraging in 2012.
“Whether they can sustain this depends on how well the country performs as a whole. The key for EPF is efficient allocation of their various asset classes,” he said.
While this is a “happy problem”, he said, EPF’s mammoth size could place the fund in a dilemma where it will be called upon to sustain the market in times of uncertainty.
He said that increased exposure to direct equities comes with volatility risks and is something EPF has to be “careful” about in order to sustain its high dividend payouts.
MTUC happy with EPF management
Malaysian Trade Union Congress, which represents the bulk of EPF’s private sector contributors says that its meetings with EPF has assured it that the fund knows what it is doing.
This includes its controversial acquisition of Felda Global Ventures Holdings (FGV) shares, which has now dropped below IPO price.
“All our queries on the matter were answered and we see that (the FGV investment) makes up only a small portion of entire investments.
“The dividend paid this year was fully justified by its earnings, which was detailed to us.
“We cannot speculate on how it will do this year, but looking at 2011 and 2012, EPF’s returns on investment have been very favourable,” MTUC president Khalid Atan said.