Nigerian Stocks Deliver Highest Dividend Yields in Africa

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Nigerian stocks have delivered higher dividend yields in Africa as shares of bellwether companies are attractive amid bearish sentiment in the capital market.

This means firms in Africa’s largest economy pay shareholders more for owning a share of their stocks.

The average dividend yields for Nigeria is 5.30 percent, that compares with South Africa, (2.60 percent); Egypt, (1.60 percent); Kenya, (2.0 percent); Morocco, (2.70 percent); Tunisia, (2.10 percent); Namibia, (2.60 percent), and Mauritius, (1.90 percent), according to data gathered by United Capital Research.

The yields on Nigeria’s stock are also higher than 2.60 percent, 1.70 percent 2.0 percent for Frontier Market, Global Market, and Emerging Market respectively.

The dividend yield, expressed as a percentage, is a financial ratio (dividend/price) that shows how much a company pays out in dividends each year relative to its stock price.

Interestingly, investors are allured to stocks in Nigeria because of their attractive dividend and corporate profit growth as foreign investors had dumped shares over foreign exchange volatility and lack of transformation policy on the part of the Buhari led administration.

Rewarding shareholders out of distributable profit signals financial stability, but in the corporate finance world, the value of a firm is a function of present value of future cash flow.

In 2020, the largest companies paid N865.15 billion in dividend to their owners, with an average industry yield of 8.50 percent.

Consumer goods firms like Nestle tapped its retained earnings to maintain a payout over 100 percent; the company has been distributing all earnings as dividend.

They have kicked 2021 starting as some of them have declared interim dividends.

The board of directors of Total Nigeria Plc, the largest downstream player that recorded stellar performance in half year, have declared an interim dividend of N4.

However, the rise in dividend yield could be a result of declining stock price that is the denominator in the calculation of the yield.

The Nigerian stock market, which kicked off the year with some of the bullish momenta from 2020, gaining 5.3 percent in Jan-2021, has slumped 5.9 percent year to date (YTD), closing at 37,907.28 index points at the end of first half of (H1-2021). The equity market has returned -4.14 percent year to date as at July 23, 2021.

The reversal of fortune that weighed on sentiments was due to rising bond yields that spurred an unprecedented rotation from equities to bonds.

A bearish sentiment makes debt more attractive because bond prices fall, but it is detrimental to companies because they will pay higher coupon rate and interest expense on money borrowed from banks.

Analysts are optimistic that the gradual reopening of the economy by the government will galvanize economic activities and lift corporate profit.

Economic recovery continued in the first quarter (Q1 2021), as growth settled at 0.5 percent, which was an improvement from 0.10 percent in the fourth quarter.

Brent, the crude against which Nigeria’s oil is priced, dropped 0.23 percent to $73.56 as at July 23, the price of black gold was zero around march 2020.

However, the stock market could be clobbered down again as a 3rd wave of the pandemic, led by a new, more-infectious “Delta” variant, has emerged in various pockets of the globe, prompting the reintroduction of lockdowns.

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