The big banks otherwise known as Tier one lenders are to drive dividend pay-outs as they continue to enjoy consistent earnings growth amid a tough and volatile economic environment, according analysts at Stanbic IBTC Holdings.
The dividend pay-out ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company. The amount that is not paid to shareholders of a company are transferred to reserves and used to finance future expansion plans.
“We estimate 21 percent average growth in dividend per share for our coverage banks in 2017, driven primarily by strong earnings growth,” said analysts at Stanbic IBTC.
The analysts further said, “Within our coverage, we expect the tier 1 banks to continue to dominate in absolute dividend paid and dividend pay-out ratio, driven by a combination of their more robust earnings generation capacity and stronger capital positions.”
Nigerian banks are set to increase their share of the NSE 30 Index’s dividend this year.
Lenders accounted for 64.20 percent of NSE 30 Index’s profit earned in the first nine months of 2017, up from 55.62 percent for all of 2016.
Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited says these trends will continue this year because the big banks have stronger earnings.
Zenith Bank, Guaranty Trust Bank (GTBank), First Bank Nigeria Holdings, Stanbic IBTC Holdings, United Bank for Africa (UBA), and Zenith, paid out N178.83 billion (41.27 percent) of the total dividends of N428.35 billion paid by the NSE-30 members firms to shareholders last year.
However, some companies among the NSE 30 firms may not reward shareholders as they have been recording recurring losses.
The law prohibits a firm from paying dividend from negative retained earnings and even if it makes a profit in a given year, such profit must be used to reduce or offset accumulated losses.
Union Bank, Wema and Union Bank will not reward their owners as they have negative retained earnings of N254.40 billion, N273.64 billion, and N36.14 billion respectively.
Oando Nigeria Plc, an upstream oil and gas giant, will not pay dividend due to an accumulated losses of N254.40 billion as at nine month September 2017.
Analysts at Stanbic IBTC say they estimate dividend yields (DY) of 7.2 percent, 6.7 percent and 5.5 percent for UBA, Zenith and Access respectively.
They added that the DYs are attractive when compared to the MSCI frontier and NGSE 30 index dividend yields of 3 percent and 2.9 percent respectively.
DY is a financial ratio that indicates how much a company pays out in dividends each year relative to its share price.
Banks in Africa’s largest economy have been enjoying a rally since last year as investors continue to buy into their stocks on the back of an economic recovery and the introduction of a new FX regime by the apex bank.