Dividend-chasing investors at the Nairobi Securities Exchange (NSE) have lifted the stock market valuation by Sh289 billion in three months, signalling an end to a free fall that had seen the bourse touch an eight-year low in January.
The steady growth in paper wealth for NSE investors has come on the back of elevated demand for blue chip stocks, which are known for their generous dividend policies.
The market capitalisation at the bourse — the measure of investor wealth — has shot up to Sh2.045 trillion from Sh1.756 trillion at the end of January, with investors in banks, commercial and service firms and Safaricom being the biggest gainers.
The market had fallen to an eight-year low at the end of January, with the benchmark NSE 20-Share Index trading at 2,789 points.
It has since recovered to go up to 3,296 points, a gain of 18.2 per cent.
Dividend yields on offer for investors have gone up this year due to lower share prices, with companies such as KCB #ticker:KCB, Barclays #ticker:BBK, Standard Chartered #ticker:SCBK, Kenya Power #ticker:KPLC, Nation Media Group #ticker:NMG and Stanbic #ticker:CFC offering yields of between 7.5 and 12.6 per cent.
Fifteen companies are currently trading cum-dividend.
“The issue of dividends is definitely a factor. Considering the fact that this is an election year, investors have opted to shore up on defensive stocks, given the attractive share price entry points, and lock in attractive dividend yields,” said Dyer & Blair Investment Bank’s head of research, Linet Muriungi.
“This is especially true for the banking stocks given that there isn’t much of a significant change in banking stocks’ dividend yields or payouts. If anything certain tier one banks pleasantly surprised the market by opting for more generous dividend policies.”
High net worth investors, especially those holding large bank stakes, are enjoying a boost to the tune of billions of shillings in the value of their wealth at the bourse.
Equity Bank CEO James Mwangi and his wife, Jane Njuguna, have seen the value of their 6.14 per cent holding in the lender rise by Sh2.78 billion, while Andrew Kimani’s 2.31 per cent stake in the bank has appreciated in value by Sh1.05 billion in the past three months.
Co-operative Bank #ticker:COOP CEO Gideon Muriuki’s 2.05 per cent stake in the lender has appreciated in value by Sh606 million, while the Babla family of Mombasa is Sh667 million wealthier on paper due to the price appreciation on their 1.5 per cent holding in KCB.
These higher dividend yields are competing favourably with the rates on offer on short-term government securities, thus beginning to pull back capital to the stock market.
Bank stocks have contributed the bulk of the capitalisation gains recorded since January, collectively adding Sh152 billion in value to the market.
KCB is up Sh44.5 billion in value to Sh115.7 billion, thanks to a 62 per cent price appreciation to a near one-year high of Sh37.75.
Equity has a gain of Sh45.3 billion, or 51 per cent, to Sh134 billion, with its price going up by Sh12 to Sh35.50. Co-operative Bank has gained 53 per cent, with its capitalisation up Sh29.6 billion to Sh85.3 billion.
Ms Muriungi said that the banking stocks’ rebound is partly a correction from the over-reaction by investors to unimpressive 2016 banking sector financial results, which saw some of the lenders’ stock prices sink to multi-year lows.
A majority of the banks —including those which reported a fall in profits— either maintained or raised their dividends, choosing to distribute their extra cash to their owners as reduced lending eased pressure on their capital requirements.
Safaricom #ticker:SCOM has also made gains after announcing a record Sh48 billion in net profit for the year ending March 2017, which came with a dividend of Sh0.97 a share.
The telcoms operator’s market cap has gone up by 11.7 per cent or Sh86 billion since January to Sh821.3 billion, with its price of Sh20.50 close to historical highs.
“Safaricom is about 42.5 per cent of the index and therefore whither Safaricom goes so does the index. Safaricom underpins the market,” said investment analyst Aly-Khan Satchu.
He added that the gains across different stocks are likely to continue in the short term, even with the added factor of the upcoming elections which pose some political risk to investors.
“I think we have further to go especially since we have really lagged emerging and developed markets. The elastic band has further to snap to the upside before the election starts to loom large,” said Mr Satchu.
Institutional and foreign investors are, however, the ones gaining the most from the market rally, having done most of the buying in the first two months of the year.
Ms Muriungi said they are likely to remain the most active heading to the August elections, with retailers only likely to return after the polls.