The extended Nairobi Securities Exchange (NSE) bear run has served to lift dividend yields on bank stocks to double digits as the sector’s share prices slide in line with the general market rout.
Beyond the sharp fall in bank stocks, the lenders raised dividend payouts to shareholders for the financial year ended December 2022, leading to higher cash returns.
Standard Chartered Bank Kenya’s dividend yield as of Tuesday was the highest at 14.5 percent based on its Sh151.25 share price and Sh22 dividend per share, with the bank’s stock having fallen from Sh170 at the end of the quarter to March.
The listed lender raised its dividend payout from Sh19 to Sh22 in the year to December 2022.
Other banking sector counters with high dividend yields include Co-operative Bank of Kenya at 14.5 percent, I&M Group at 12.9 percent and Stanbic Holdings at 12.4 percent.
Overall, listed dividend-paying banks have an average yield of 12.3 percent, trouncing returns from other asset classes such as commercial bank fixed deposit rates and rental properties.
Ten of all 11 listed banking stocks paid dividends to shareholders this year, except for Housing Finance, which continued its freeze on cash returns.
Most of the counters lifted dividends to shareholders in the period on improved earnings from operations across 2022.
Rwandese cross-listed BK Group, for instance, lifted its dividend to Sh3.74 from Sh3.26 while Diamond Trust Bank’s dividend per share hit Sh5 from Sh3.
Equity Group, meanwhile, raised its dividend to Sh4 from Sh3, while Stanbic Holdings’ dividend per share hit Sh12.6 from Sh9.
Dividend yield, which is expressed as a percentage, is a financial ratio that shows how much a company pays out in dividends each year relative to the stock price.
The ratio is a measure of the dividend-only return of a stock market.
For instance, an investor in Standard Chartered Bank’s stock would earn a return of 14.5 percent holding both its share price and dividend payout at constant.
Dividend yields rise and fall based on changes to stock prices where the yield will increase in a bear run and narrow during a bull run (market rally).
As such dividend yields can appear unusually high for stocks whose value falls rapidly.
Banking sector stocks have traditionally held the highest dividend yields based on their ability to consistently pay out dividends.
Other shares with high dividend yields outside banks include BAT, Williamson Tea Kenya, Kenya Electricity Generating Company and BAT.
Given higher dividend yields may rise as a result of a declining stock price due to deterioration fundamentals, they are not always indicative of attractive long-term investment opportunities.
Traditionally, mature companies defined as well-established in their respective industries usually pay the highest dividend yields.
