An experienced equity income investor is aware that impulsively buying stocks with the highest dividend yield could be perilous.
This is because stock prices and dividend yield move in opposite directions, which means buying an unusually high dividend yield is tantamount to buying trouble.
Like Kiplinger’s senior investing writer, Dan Burrows puts it: “It’s possible that a too-good-to-be-true dividend yield is simply a side effect of a stock having lost a lot of value,”
It is generally accepted that buying stocks with a high dividend yield provides a good source of income for investors while it also signals financial stability and sustainability of the company.
There is a need for investors to pay attention to the cash flow generation of firms and the liquidity and capital position of financial institutions when making such investment decisions.
AXA Mansard Plc
AXA Mansard Plc emerges as the firm with the highest dividend yield in the NGXAI index as the equity market rally propelled by the new administration’s acceptable reforms hit a bear run last week.
The largest listed insurer by gross premium written (GPW) has a dividend yield (DY) of 11.04 percent and its price to earnings multiple of 2.07 times is the lowest among in the Nigerian equity market, which validates the attractiveness of its share price.
It beats United Capital’s DY of (10.95 percent); Access Holdings, (10.03 percent); Zenith Bank, (9.85 percent); Guaranty Trust Holding Company (9.31 percent); and Julius Berger, (8.99 percent).
Increased technology adoption and improved underwriting performance are the major diver of earnings as the insurer has a strong balance sheet or liquidity to invest in government securities which pave the way for it to earn investment income.
For the first three months through March 2023, AXA Mansard’s profit after tax (PAT) surged by 230.03 percent to N1.58 billion from N463.84 million as at March 2022.
Insurance revenue was up 12.63 percent to N19.43 billion in the period under review from N17.25 billion the previous year.