BusinessDay reviewed stocks with highest dividend yields amongst companies listed on the Nigerian Stock Exchange (NSE) 30 index to show the yields investors can expect by purchasing such stocks.
Dividend yield is the ratio of a company’s annual dividend compared to its share price. It is also a company’s total annual dividend payments divided by its market capitalisation, assuming the number of shares is constant and expressed in percentage.
For every stock, the dividend yield is dependent on the movement of its share price at the bourse, implying that the percentage of the company’s market value per share that is paid to shareholders in the form of dividends varies constantly as the price of the stock changes.
It is noteworthy that the yield ratio is not an indicator of a good or bad company as its direction is determined by a number of factors including the industry and the business life cycle of the company.
A fast-growing company may decide not to pay any dividends. Instead, it may choose to better utilise the money by reinvesting into the company to grow the business, while on the other hand, another company with weak financials may report a high yield due to a lack of high future growth potential to cheer shareholders.
With the massive sell offs experienced in Nigeria’s stock market, forcing prices of stocks low, investors would likely prefer to hold stocks with higher dividend yield compared to other peers.
For example, Company A’s stock is trading at N5 and pays annual dividends of N1 per share to its shareholders. Also, suppose that Company B’s stock is trading at N10 and also pays an annual dividend of N1 per share. This means that Company A’s dividend yield is 20 percent (1 / 5 = 0.2), while Company B’s dividend yield is only 10 percent (1 / 10 = 0.1).
However, higher dividend yield may be attractive. It could have a high cost implication to the company’s growth prospect as the money which could have been ploughed back to stimulate growth is used to compensate investors for higher risk taken.
As at the close of business Friday, December 25, tier-one lender, Zenith Bank Plc, leads the ranking with the highest dividend yield of 12.39 percent; Dangote Sugar Plc trails with 12.07 percent, while cement maker, Larfarge Nigeria Plc, takes the third position.
These three stocks with the highest dividend yields have share prices at 17.35 percent, 16.47 percent and 10.62 percent near their 52-week lows of N19.60, N12.45 and N11.30 respectively, indicating the stocks are currently cheap.
Seplat Petroleum Development Company Plc, which is currently one of the worst-performing large-cap stocks in 2019 after losing 15.63 percent of its market value, posts a dividend yield of 3.36 percent.
United Bank for Africa Plc has a dividend yield of 11.04 percent; Access Bank Plc, 10.66 percent; Guaranty Trust Bank Plc, 7.95 percent; Dangote Cement Plc, 5.41 percent; while Fidelity Bank has 4.78 percent yield.
Whilst high-yield dividend stocks may be eye-catching for investors willing to take position to generate high dividend income, caution needs to be taken as such stocks could imply low valuations and not necessarily translate to steady dividend increase by the companies which may not be desirable for the investors.
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