• Sunday, May 26, 2024
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Big Banks’ attractive yields means they are a buy

Big Banks’ attractive yields means they are a buy

The recent sell off in stocks by equity investors due to a sharp fall in crude oil price and concerns over the effects of coronavirus on global economy is a blessing in disguise for the big five banks as record high dividend yield means their stocks are cheap.

Analysts say whoever invests in these portfolios will make money when the economic fundamentals changes, but they warn that investors will have to be patient to reap the dividend of such investment.

“Once the rout settles the share price will double. It’s an opportunity to buy if you are a patient person. You need to wait and see that the macroeconomic environment stabilize before you buy,” said Wale Okunrinboye, investment analyst with Sigma Pensions Limited.

“Saudi Arabia and Russia may agree on an output cut and a cure may be found for coronavirus pandemic before the end of the year. That means oil price could rebound,” said Okunrinboye.

Zenith Bank has a dividend yield (DY), 23.36 percent; United Bank for Africa (UBA), 16.95 percent; Guaranty Trust (GTBank) Bank, 14.75 percent; Access Bank, 12.04 percent, and First Bank Holdings, 6.26 percent.

The dividend yield is the amount of money a company pays shareholders (over the course of a year) for owning a share of its stock, divided by its current stock price.

Banks’ stocks are cheap or undervalued as evidenced in a low price to earnings ratio (another buy opportunity), and industry share index have shed -32.23 percent, as investors apathy toward Nigeria’s equity market despite dividend declaration by bellwether companies.

Zenith Bank has a price to earnings ratio of 1.77 times; GTBank, 2.73 times; FBNH, 2.78 times; Access, 1.78 times, and UBA, 2.44 times.

Nigeria banks have continued to reward their owners out of distributable profit as they paid a combined N220.79 billion in dividend for 2019 financial year.

Despite the level of unpredictability in the earnings stream of Nigerian banks, investment house Renaissance Capital has placed Buy ratings on GTBank and Zenith Bank.

The currency in Africa’s top oil producing country, which relies on crude sales for 90 percent of foreign exchange earnings, has come under pressure after oil prices plunged over the weekend following a disagreement between Russia and Saudi Arabia over a deeper production cut. The coronavirus outbreak has also hit global demand for oil.