What you need to know:
- Manufacturing, cement and banking companies listed at the NSE recorded the highest investor returns.
- The performance of East African Breweries, BAT and Kenya Orchards had the biggest ROEs, leading to the high median return for the NSE’s manufacturing sector, according to the August 16 data generated by Dyer and Blair Investment Bank.
- The cause of the high ROEs is the profitability of the firms relative to the shareholders’ funds that have been deployed.
Manufacturing, cement and banking companies listed at the Nairobi Securities Exchange (NSE) recorded the highest investor returns as a proportion of the equity investments, new data shows.
Measured as return on equity (ROE) — which calculates net profit as a proportion of equity invested or net assets — the NSE’s manufacturing sector had a median of 30.47 while cement and construction had 17.90 and banks 15.49.
The performance of East African Breweries, BAT and Kenya Orchards had the biggest ROEs, leading to the high median return for the NSE’s manufacturing sector, according to the August 16 data generated by Dyer and Blair Investment Bank. The cause of the high ROEs is the profitability of the firms relative to the shareholders’ funds that have been deployed.
Dividend yields have recently been on the rise because prices have fallen as indicated by the NSE 20-Share Index, which is now at a decade-long low.
“On the ROE, one needs to look at the industry median and then compare with the individual company figure. For banks, for example, the ROEs were higher before the rate cap and they could return to higher levels in the event that that it is removed,” said Edwin Chui, head of research at Dyer and Blair Investment Bank.
In terms of the dividend yield, a number of firms are currently at figures above the 91- and 82-day Treasury bill rates – making for good investments.
“Besides removing the cap, nonperforming loans have to come down in order for the ROEs to rise to previous levels,” said Mr Chui.
The banking sector has the highest median yield of 5.11 per cent followed by Utilities and Downstream Oil Sector which had 4.78 per cent as at August 16.
The Agricultural Sector has a median of 4.3 per cent with the highest yield of 15.4 per cent coming from Williamson Tea.
“Shareholders who are looking for long-term investments in the equities market should look at the return on equity because it shows the strength and efficiency of the companies going into the future,” said Mercyline Gatebi-Kyalo, research head at Kingdom Securities.
However, she said if an investor is looking for short-term securities to put their money in, then they should consider counters with high dividend yields.
“High dividends is a good measure to take into account but this relate to the current performance of the securities in the market and could change with changes in prices. The point is that the dividend yields should be an important consideration when you are out to invest in the short term,” said Ms Gatebi-Kyalo.