As the Nigerian stock market navigates a period of volatility, as reflected in the decline of the NGX All-Share Index (ASI) from a 40% gain in Q1 to 34% in the first half and further down to 29% as of August 2024, dividend income a key component of total return requires close attention from investors.
Four companies stand out with double-digit dividend yields, offering attractive returns for income-focused investors and enhancing total returns amid the market’s declining trend.
These companies; Smart Products Nigeria Plc, UBA, Access Holdings, and Zenith Bank, not only have the highest dividend yields but also boast solid fundamentals, making them stocks to watch for investors seeking steady income.
As of the close of trading in August 2024, these stocks offered the highest trailing dividend yields, ranging from 10% to 40%.
It is important to note that some of the top-performing companies with triple-digit share price gains as of this date, such as Julu Plc, Oando, RT Briscoe, Julius Berger, Veritas, Presco, Geregu, and BUA Foods, have lower dividend yields, ranging from 0.00% to 6%.
In contrast, while the high dividend yields stocks; Smart Products Nigeria Plc, UBA, Access Holdings, and Zenith Bank, have seen YtD share price declines (except for Smart Products with a flat YtD gain), they continue to offer strong income potential through dividends.
This means that despite the share price pressure, these stocks remain attractive to income-focused investors, highlighting the importance of considering both dividend yield and share price performance when evaluating total returns.
Zenith Bank Plc (Dividend Yield: 10.46%)
With a trailing dividend yield of 10.46%, Zenith Bank remains an attractive option for income-focused investors. Despite a year-to-date (YtD) share price loss of 1.03%, its solid dividend yield has bolstered its total return to 9.42%.
Zenith Bank has consistently paid dividends over the past five years, increasing its dividend per share (DPS) by 25% in 2023 to N4 per share. Although the payout ratio decreased to 18.55%, down from 45% in 2022, this may be the bank’s strategic retention of earnings to fuel growth while rewarding shareholders.
As one of Nigeria’s most profitable financial institutions, Zenith Bank continues to deliver strong results. In 2023, the bank posted a record profit after tax (PAT) of N677 billion, supported by robust cash flow from operations of N1.79 trillion and retained earnings of N1.2 trillion. Earnings per share (EPS) surged by 202% in 2023, far exceeding its three-year compound annual growth rate (CAGR) of 38%.
This momentum has carried into 2024, with profit after tax reaching N578 billion by mid-year, already covering over 83% of the 2023 full-year figure.
Additionally, Zenith Bank increased its interim dividend from N0.30 in the first half of 2023 to N1 for the first half of 2024, further affirming its commitment to shareholders.
Despite the slight YtD share price loss of 1.03%, Zenith Bank’s total return of 9.42% highlights its ability to navigate market challenges. Trading at a price-to-earnings (P/E) ratio of 1.36 and a beta of 0.836, the stock presents a balance of moderate risk and steady returns. Its consistent dividend payouts, backed by strong financial performance, make it an appealing option for investors seeking stability and income in a volatile market.
Access Holding Plc (Dividend Yield 11.05%)
With a trailing dividend yield of 11.05%, Access Holdings stands out as another top performer for dividend investors. Although the stock recorded a 17.93% YtD loss, its strong track record of dividend payments makes it a compelling option for those seeking steady income.
In 2023, Access Holdings increased its dividend by 40%, despite a reduction in its payout ratio to 12%.
The bank generated N1.88 trillion in cash flow from operations in 2023, and its retained earnings as of Q1 2024 stood at N884.9 billion. This suggests that Access Holdings has ample room to sustain or increase dividend payments in the near term.
Additionally, its earnings per share (EPS) in Q1 2024 grew by 288% to N4.35, indicating strong underlying business performance despite the current share price weakness.
Trading at a low price-to-earnings (P/E) multiple of 0.96x and with a beta of 0.655, Access Holdings appears undervalued and exhibits low volatility compared to the broader market.
This combination makes Access Holdings an appealing option for risk-averse investors seeking both income and the potential for capital appreciation. In 2023, the stock posted a notable 172% YtD gain, reflecting its strong performance prior to the current market downturn.
The stock’s solid fundamentals suggest room for price recovery as the market navigates its bearish trend. Additionally, expectations of a potential dividend increase in the upcoming first half of 2024 results, building on the 30 kobo interim dividend paid in the first half of 2023, add to its investment appeal.
UBA ranks prominently with a trailing dividend yield of 12.20%. Despite a year-to-date (YtD) share price loss of 7.99%, UBA’s consistent dividend payments make it an attractive option for long-term income investors.
In 2023, UBA achieved a total return of 249.70%, reflecting its strong operational and financial performance.
UBA’s dividend per share (DPS) grew by 155% in 2023 to N2.80. The bank’s cash flow from operations surged to N3.32 trillion, and its earnings per share (EPS) increased by 261%, highlighting its potential for both income and capital gains as the market stabilizes. UBA’s share price posted a 2338% YtD gain in 2023, highlighting its robust performance.
With a relatively low earnings multiple of 1.18x and a stock beta of 0.524, UBA appears undervalued and offers lower volatility compared to the broader market. This combination makes it a compelling choice for risk-averse investors seeking reliable dividend income.
The bank paid an interim dividend of N0.50 for the first half of 2023. As investors await the first half of 2024 results, there is anticipation of a potential increase in the dividend, which could further boost investor confidence and help counter the current bearish trend.
Smart Products Nigeria Plc (Dividend Yield: 40%)
At the top of the list is Smart Products Nigeria Plc, boasting the highest dividend yield on the NGX at 40%.
This yield is based on its 8 kobo dividend per share and a share price of N0.20 as of August 2024. Despite this attractive yield, the company’s financial performance shows a mixed picture.
In 2023, Smart Products’ profit after tax grew only marginally to N6.59 million, with net operating cash flow standing at N28 million. The company’s payout ratio decreased to 54.67% from 74% in 2022, indicating a more cautious approach to maintaining its high dividend yield.
Smart Products operates in the niche sector of property leasing, focusing on long-term warehouse leases across Nigeria. While this provides stable cash flows that support its substantial dividends, the company’s modest profitability raises concerns about its ability to sustain such high dividends over the long term.
Smart Products Nigeria Plc’s substantial dividend yield makes it a notable option for income-focused investors. However, its financial performance and modest growth warrant careful consideration regarding its long-term dividend sustainability.
