Banking stocks’ dividends have shot up compared to their prices after valuation dropped between 25 and 55 per cent from the beginning of the year.
The bearish trend at the Nairobi Securities Exchange (NSE) has helped bank dividend yields — which relate investor payout and stock price — to rise sharply. The bourse’s main index has lost more than 23 per cent in value since the beginning of the year.
Top 10 yielding stocks include Standard Chartered, Barclays, Housing Finance, CfC Stanbic and KCB Group, according to the NSE.
Analysts say the reason banking stocks have become cheap — and therefore have high dividend yields — is the expected lower earnings due to slow profit growth in quarter four of this year as lending is likely to slow down and cost of funding escalate.
“We expect slow earnings growth compared to quarter three 2015 as a result of high costs of funding given the spike in interest rates in the market and lower loan uptake given the expensive costs of financing loans,” said Nairobi-based Cytonn Investments in an analysis.
Standard Investment Bank (SIB) said Barclays though continues to underperform in the first half of this year, and forecasts that the bank will continue lagging behind, although it adds, it is a “buy” given its current valuation. The bank is at a price of Sh12.60 and a price-to-earnings (PE) ratio of 8.2, which is lower than that of three other listed banks.
READ: Banks lower growth forecasts on high interest rates
“In the first quarter of 2015, Barclay’s continued underperforming its peers on key measures (earnings per share, loans and deposits growth). our forecasts show Barclays lagging its peers financial years 2015-2018,” said SIB adding that it expects management’s continued disciplined balance between growth and dividend payout to shield investors’ returns.
SIB also terms StanChart a “buy” given the current valuations, forecasting a PE of 8.3 by the end of this year — which is below that of several other listed banks.
Cytonn Investments aises clients to buy StanChart (implying the share is undervalued) and accumulate Barclays shares. However, despite the high dividend yield, the same firm aises investors to “hold” on Housing Finance saying that it has minimal upside in price.
Analysts note banks have been among the biggest losers in terms of share prices this year.