Some nine stocks at the NSE are trading at multi-year lows in the current bear market, offering investors an attractive entry point and higher dividend yields.
Nairobi Securities Exchange data shows Stanbic Bank, Kenya Power, Athi River Mining, Sanlam, East Africa Breweries Ltd, Centum, Diamond Trust Bank, Umeme and CIC Insurance are trading at lows of between three to 12 years.
Others such as Home Afrika and KenGen are trading at near all time lows.
Due to the low prices, the markets dividend yield has on average risen by nearly four percentage points, while the price to earnings ratio (P/E) has contracted by a similar margin.
“The market is currently trading at a price to earnings ratio of 9.8 times, versus a historical average of 13.5 times, with a dividend yield of 7.1 per cent versus a historical average of 3.6 per cent,” said Cytonn Investments in its latest market bulletin.
The P/E ratio is obtained by dividing a company’s share price with its earnings per share (EPS). It shows the amount of money investors would invest in order to get a shilling return from the company.
The higher the P/E ratio, the more expensive a share is considered to be. The dividend yield shows how much a company pays out in dividends each year relative to its share price, with a higher yield equating to higher return on investment for the investor.
At the NSE, 10 firms have a dividend yield (dividend divided by share price) that is above the market average, with Williamson Tea at 24.2 per cent, Barclays at 12.4 per cent, HF Group at 10.9 per cent and NMG at 13.1 per cent, offering a double digit return.
When a share price contracts, dividend yield goes up even when firms maintain a constant nominal dividend pay-out.
The market has been on a slide since March 2015 when it went bearish following the positive returns recorded in the preceding three years.
Investors have lost Sh654 billion in paper wealth during the latest bear run, which has seen the main index (the NSE 20 share index) lose 46.3 per cent value to stand at 2,955 points.
Analysts expect equities will be flat this year, weighed down by concerns over the General Election and the US Federal Reserve base rate hike.
“Following the decision by the US Fed in mid-December to increase the benchmark interest rate by 0.25 per cent we witnessed a bit of volatility on some large cap stocks led by Safaricom, EABL, Co-operative Bank and KenGen. We expect this decision to lead to some form of capital flight from our market, which may leave valuations lower than they closed 2016,” said AIB Capital in an economic outlook note.
Corporate earnings are also likely to come in lower for the 2016 financial year, with five listed firms — Deacons, Sanlam, NSE, Sasini and Sameer — already issuing profit warnings for the period.