Dividend yields are a key indicator for more sophisticated investors who buy stocks with a longer term outlook, as opposed to speculators who take positions solely to benefit from share prices going up.
The recent rally in share prices at the Nairobi bourse has pulled down dividend yields, which are a key consideration for longer term investors seeking a stable return without selling their shares for capital gains.
Out of the 31 listed firms which have paid a dividend this year, 25 have seen their dividend yields fall below 10 percent, compared to a year ago when 16 out of 31 were returning more than 10 percent in dividend yields.
This means that a majority of listed, dividend paying firms are now generating cash returns less than the one-year Treasury bill’s interest rate of 9.5 percent, despite the government security seeing its rate nearly halve from 16.9 percent in September 2024.
Treasury bonds are meanwhile paying returns of between 12 and 14 percent.
The equities yields are a measure of dividends as a ratio of share price. When share prices tumble the dividend yield goes up, and when prices rise they go down—presuming companies maintain their level of payout.
Although a number of listed firms raised their payouts for the 2024 financial year—whose distributions have been made this year— a faster rise in share prices across the market has seen the actual yields go down.
In the last 12 months, the Nairobi Securities Exchange (NSE) has added Sh1.15 trillion or 69 percent in investor wealth to Sh2.82 trillion, largely driven by double digit gains of between 27 and 300 percent on large blue chips that dominate the market.
These large companies are also among the top dividend payers in the market, making them a favoured investment option for institutional and foreign investors who take a longer term view of the market.
Safaricom’s trailing dividend yield now stands at 4.1 percent, compared to a yield of 8.08 percent one year ago.
Only three out of the 10 banks that have paid dividends are now offering yields above 10 percent— Standard Chartered Bank Kenya at 14.5 percent, BK Group at 10.9 percent and Stanbic at 11.41 percent. Twelve months ago, eight banks had double digit yields of between 10.9 and 14 percent.
BAT Kenya, which has maintained a dividend of Sh50 per share in the last two years, has seen its yield fall to 11.2 percent from 14.5 percent after its share price grew by 29 percent over the last 12 months to Sh447. EABL’s yield has declined to 3.5 percent from 4.1 percent a year ago, despite raising its dividend per share to Sh8 for the year to June 2025, from Sh6 previously.
Investors in the stock market earn a return on their capital when share prices go up, better known as capital gains, or through dividend payouts.
Dividend yields are, therefore, a key indicator for more sophisticated investors who buy stocks with a longer term outlook, as opposed to speculators who take positions solely to benefit from share prices going up.
A company’s ability to pay and increase dividends is also seen as a strong indicator of good financial health and stability, and when that is combined with a high yield as a result of low share price, it can point to an undervalued company.
