Equity Analysis /

Banking sector yield plays: Our 5 picks generate a median 13.2% yield

    Rahul Shah
    Rahul Shah

    Head of Financials Equity Research

    Rohit Kumar
    Rohit Kumar

    Global Financials/Thematics

    Tellimer Research
    23 July 2019
    Published by

    The hunt for yield intensifies. The money market is pricing in at least one US interest rate cut later this month – the first this decade – with more to follow. 10-year US benchmark yields have fallen by over 50bps in the past three months, and over US$13trn bonds globally are generating negative yields. Our fixed income research colleagues have already highlighted high-yielding bonds from Ghana, Petropavlovsk, DTEK and CSN, and in this report we showcase five banks within our 82-stock banks universe most likely to provide investors with sustainably high dividend yields.

    Our top yield picks: UBA (18.0% 2019f DY), Zenith (16.2%), CRDB (13.2%), GTB (10.3%), Muscat (7.4%).

    Figure 1: 2019f capital adequacy ratio versus earnings retention ratio

    Source: Tellimer Research. Size of bubble represents dividend yield.


    Key 2019f selection criteria (see also Table 2 and Figures 1-4)

    • Dividend yield: For our coverage universe this comes in at a median 4.5%. Our five yield picks have a median 13.2% yield.
    • Yield versus local benchmark: Our coverage universe typically generates a dividend yield 5.1 percentage points below the local long-term (c10-year) sovereign yield. However, c11% of our coverage generate a higher dividend yield than the sovereign bond. For our shortlisted companies, they generate a median 1.4 percentage point yield premium to the benchmark.
    • Dividend payout ratio: This stands at 31% for our global coverage median, but a 45% median for our shortlist.
    • Capital adequacy ratio: This comes in at a median 17.0% for our global coverage, and 22.2% for our shortlist