Value Investors may Buy Lenders on High Yields

The selloff in bank stocks has boosted dividend yields to levels that may attract some value investors.

The country’s five largest lenders by assets have seen their trailing 12-month dividend yields soar to between 9.01 percent and 16.72 percent amid the persistent selloff in bank stocks.

 

As investors sell bank stocks as part of a broad equity selloff, their prices decline and the dividend yield, the dividend expressed as a percentage of the stock’s price, rises.

The Nigerian Stock Exchange Banking Index has dropped 20.38 percent this year, reflecting investor’s anxiety over coming bank earnings.

Lenders saw profits crimped in the first three quarters of 2014 from higher reserve requirements, tougher regulations that reduced fees and commissions, and naira volatility and devaluation.

FBNH sports the highest dividend yield of 14.77 percent (February 20).

Other tier-one lenders’ – United Bank for Africa (UBA), Access Bank, Zenith Bank and Guaranty Trust Bank, had yields of 14.66 percent, 10.15 percent, 10.07 percent and 7.81 percent, respectively.

The nation’s pension funds administrators (PFAs) with N4.6 trillion in assets at December 2014, are a potential pool of domestic capital that could come in to buy stocks at these levels.

The PFAs assets held in domestic ordinary shares fell to 11.79 percent in December, from 12.95 percent in October, according to the most recent data from the regulator PENCOM.

We believe bank names like GTBank, FBNH and UBA are attractive at these levels.