Dividend pay fails to shield blue-chip stocks

Trading at the NSE floor. Photo/FILE
Trading at the NSE floor. Photo/FILE 

Top dividend-paying stocks at the Nairobi Securities Exchange (NSE) were not spared the share price devaluations in 2011, recording falls that in some cases were more than the average drop of the market index.

Pan Africa, Barclays, EA Cables, Mumias Sugar and StanChart were the top five dividend-yielding stocks at the NSE in 2011.

However, three of their share prices fell by more than the NSE 20-Share Index, which lost 28 per cent of its value in the year.

Pan Africa Insurance topped the dividend-paying chart with a yield of 15.1 per cent, Barclays was second with 11.7 per cent while EA Cables paid 10 per cent.

Mumias Sugar was fourth with a dividend yield of 9.5 per cent, while StanChart ranked fifth with an 8.3 per cent yield.


All the stocks, however, saw their share prices drop by between 23.1 per cent and 45.9 per cent.

Dividend yield is calculated by dividing a company’s annual per share dividend by share price.

It is considered a key measure of returns for investors who are less inclined on earning capital gains— the profit from appreciation of a company’s share price. The bear market that started in late 2010 has diminished the chances of most investors making capital gains. Only six stocks ended 2011 on positive capital gains territory.

With some of the companies still paying out dividends despite the slow rate economic growth, investors have put a premium on dividend yields as a measure of attractive stocks.

“The higher the dividend yield, the better especially during a period of high economic uncertainties like now,” said John Kamunya, a research analyst at Dyer & Blair Investment Bank. “Dividends are more certain than the capital gains and as such some investors have more preference for dividends.”

Access Kenya, Eveready, Olympia, Centum and Uchumi did not declare any dividends in the year. Analysts said the dividend-paying stocks still had an advantage over non-paying counters, as investors viewed them more favourably.

“During a bear market, dividend stocks tend to overperform growth stocks. The only year since 2008 that growth stocks over performed was in 2010 when the market rallied,”said Alex Muiruri, an analyst with African Alliance Securities Kenya said.

Growth stocks are classified as those expected to record higher than average revenue growths as they increase their client base. BAT, which is trading at a historical yield of 7.29 per cent, has in the past paid out an attractive dividends —nearly most of its earnings — attracting interest from seasoned investors looking for the annual dividends from the cigarette maker.

In a period of uncertainty when investors have been putting their money in fixed income, some investors compare a company’s dividend yield and the coupon—annual interest payment—of a fixed income security in deciding where to invest.

For example, with Barclays Bank dividend yield at 11 per cent and a the latest two-year bond giving a coupon—of 10.5 per cent then an investor stands to earn more cash from the dividend payments of holding onto the shares compared with holding the two-year bond.

But some analysts argue the comparison between the dividend yield and the investment in fixed income is not so straight forward.

“I would not use the dividend yield to pick between a share and a fixed income asset because of the difference in their features.

A dividend is not guaranteed unlike the coupon from the bond,” said Mr Kamunya.