Stock prices rise as investors seek share of high dividends 

Investors increased spending on company shares at the Uganda Securities Exchange (USE) in an effort to find safe havens from faltering returns on equities with high dividend yields. 

The dividend yield is the percentage of the stock’s current price paid out as dividends to shareholders annually.

Due to their high dividend yields of 17.7 percent, 17.5 percent and 15.2 percent respectively, Stanbic, Umeme, and National Insurance Company have attracted the largest number of investors, according to stock brokers.

By close of Umeme’s books on June 30, - the deadline for dividend consideration - the power distributor’s share price had risen by 4.8 percent from Shs420 before the dividend declaration notice published on May 19. 

In the notice, Umeme said that it would raise the dividend paid per ordinary share from Sh54.1 in 2021 to Sh63.9 in 2022.

Since then, there has been a significant increase in demand for shares, which has increased sales and ultimately reduced the share price due to the aggregate supply.

The share price began declining on July 3 (Shs440), and followed the trend until July 11 (Shs420), before levelling off for nine days. 

This decline followed the trading frenzy that preceded the closing of Umeme’s register.

During the period, the Stanbic stock attracted investment, following approval of a dividend pay-out of Sh3.61 per share on June 2. The stock price stood at Sh21. 

But before the bank’s register closed on June 25 its share price had soared by 23.8 percent to Shs26.  “Funds that chase after absolute returns are hunting for stocks with high dividend yield,” said Mr David Calvin Bateme, the Crested Capital head of research, noting that the recent gains had been fuelled by buying from a wide range of investors, including local punters, foreign investors, insurers and even the banks’ own investment funds.

However, some counters such as British American Tobacco Uganda (BATU) did not realise significant activity during the period. 

For instance, BATU registered low activity despite announcing a Sh209 dividend pay-out per share, the highest at USE.  

“For BATU, one wouldn’t state that the counter is not trading because of dividends; the counter has been unattractive with a dividend yield of 1.39 percent, which is the smallest on the bourse,” Mr Bateme said. 

The USE, which was established in 1997, provides a structured market where buyers and sellers of securities interact through dealer or brokerage representation. 

Bridge between 

The USE serves as a bridge between businesses in need of capital and investors, both foreign and local. 

However, the USE has seen some volatility overtime with investors such as NSSF, which invests at least Sh2.3 trillion of its income in equities and securities, adjust to put more money in investments that promise higher returns. 

For instance, in 2022, NSSF investments in real estate increased by Shs63.3b to Shs719.9b, according to the Fund’s transparency statement. 

Mr Gerald Paul Kasaato, the NSSF chief investment officer, said the Fund has confidence in equities despite related volatility. 

“We have invested in stock markets but equities tend to be very volatile. In a good year you could have an upside of 30 percent but in a bad year the market can be down by like 20 percent,” he said. 

In the first quarter of 2023, the USE market capitalisation fell by 5.4 percent, wiping out Shs1.1 trillion in investor’s wealth, according to a Capital Markets Authority report.

“The drop was due to share price losses on all cross-listed counters,” CMA said indicated, noting that losses were registered on a number of counters including Centum, East African Breweries Limited, Equity Bank, Jubilee Holdings, Kenya Airways, KCB, Nation Media Group, Uganda Clays, MTN and dfcu. 

Losses registered on locally listed stocks stood at Shs200b during the period, in which market capitalization for Uganda clays dropped by 12.8 percent, while MTN and dfcu dropped by 5.6 percent and 4.2 percent, respectively. 

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