Some Nigerian-listed companies have consistently provided returns to their shareholders through dividend payouts, as indicated by data from their financial statements.
A recent analysis by Nairametrics, focusing on dividend-paying companies across various sectors including financial services, manufacturing, telecoms, and consumer goods, has revealed that about 32 companies have consistently paid dividends to their shareholders for the past five years; (2018 to 2022).
According to the analysis, these companies paid a total of N3.47 trillion in dividends over the five-year period. This translates to an average 5-year compound annual growth rate (CAGR) of 14.74%.
While the total payout is indeed substantial, the growth rate of these dividends, or the dividend CAGR, is equally crucial for investors as it can significantly impact their long-term investment returns.
In fact, when investing in income stocks, it is important not only to consider dividend yield but also to look for companies with consistent dividend growth rates over time, as indicated by their dividend CAGR.
The dividend Compound Annual Growth Rate (CAGR) is a financial metric that measures the annualized rate at which a company’s dividend payments to shareholders have increased over a specific period.
This metric directly affects the total return on an investment. When companies consistently raise their dividend payouts, it can lead to substantial income growth for investors over time.
This not only provides a reliable income stream but also enhances the overall return on investment.
In this context, the average 5-year compound annual growth rate of 14.74% indicates that the total dividends paid by these companies have been growing at an average rate of 14.74% per year over the past five years.
This demonstrates consistent growth and profitability, suggesting that these companies have been able to increase their earnings and, consequently, their dividends year after year.
For shareholders, this means that they not only receive dividends but also experience an annual increase in dividend amounts at a significant rate, enhancing their overall return on investment.
This factor becomes crucial for potential investors considering entering the income stock market, especially as we approach the year’s final quarter and await the release of full-year 2023 financial results, followed by the declaration and payment of dividends. Some of these companies have already announced interim dividends for the first half of 2023 and are expected to declare final dividends next year.
While equivalent to its 2022 full-year PAT of N16.231 billion. This suggests that if Okomu maintains its performance, these companies achieved a commendable 14.74% dividend CAGR, it’s noteworthy that some of them surpassed the 20% mark in dividend CAGR. Among them are Okomu Oil, Vitafoam, NAHCO, Fidson, Fidelity Bank, Access Holdings, Guinness, Presco, Wema Bank, and NPF Microfinance Bank.
Okomu Oil, in particular, shines with an impressive 5-year dividend CAGR of 47.58%. This means that Okomu has consistently increased its dividend payments at an impressive average annual rate of 47.58% over the past five years, higher than the average 14.74% observed among the other companies.
The sustainability of Okomu’s impressive dividend growth into 2023 will indeed depend on its performance in the second half of the year. Despite a 4% decline in H1 2023 Profit After Tax (PAT) to N16.2 billion, this figure is almost equal in H2, it could potentially match or even exceed its 2022 earnings, which could support continued strong dividend payouts.
Vitafoam’s 5-year dividend CAGR of 43.48% is also commendable, indicating a strong growth in dividends over the past five years. Despite a slight decline of 1.63% in net income in 2022, Vitafoam declared a dividend of N1.52, 1.3% higher than the 2021 financial year figure.
However, it is important to note that the company has seen an 18.57% decline in net income in the first nine months of the current year. This downward trend in net income could potentially impact on the company’s ability to maintain its impressive dividend growth rate.
NAHCO has also shown a strong commitment to its shareholders, as evidenced by its significant 5-year dividend CAGR of 42%. This growth was largely driven by an increase in both the dividend per share and the issued share capital in 2022.
Over the past five years, NAHCO’s net income has seen a substantial increase, growing from N197 million in 2018 to N2.674 billion in 2022. This represents a robust 5-year net income CAGR of approximately 57%, indicating a strong growth potential and profitability for the company.
Despite the rapid growth in earnings, NAHCO has maintained a steady distribution of its earnings as dividends to its shareholders. The company’s ability to balance earnings retention for growth and profit distribution to shareholders, as reflected in the 42% dividend CAGR, is a plus for the company.
Other companies have demonstrated impressive dividend growth, with Fidson (+41.19%), NPFMCRFBK (+39.29%), Fidelity Bank (35.4%), Presco (+34.5%), Guinness (+31%), Access Holdings (+29.8%), and Wema bank (27%) all exceeding a 20% dividend CAGR.
However, it is crucial to emphasize that when evaluating income stocks, investors should look beyond just dividend CAGR. They should consider a broader set of metrics, including dividend amount, dividend yield, earnings growth, debt-to-equity ratio, market capitalization, industry trends, and more
For instance, among the companies mentioned, Dangote Cement, Zenith Bank, GTCO, Nestle, and Stanbic IBTC stand out as the top five companies with the highest dividend payouts within the reviewed period.
Notably, Dangote Cement’s N1.493 trillion dividend payout alone represents approximately 43% of the total payout, underscoring the significance of examining dividend amount alongside other critical factors when making investment decisions to invest in income stock.