Income investors looking for yearly cash flow from investment vehicles look to companies with a steady dividend payout policy and hope to buy into these companies cheap. In the insurance sector, Lasaco and Linkage Assurance have the highest dividend returns when compared to the price they currently sell for on the local bourse.
Lasaco, at its current price of N0.31 and a last reported dividend of 4 kobo, ranks as the best insurance stock for income investors with a dividend yield of 12.9 percent. In a market with an average dividend yield of 5 to 6 percent and inflation of 11.31 percent, such yields are impressive and deserve a second look.
Dividend yield measures how much cash flow you as an investor get for every Naira invested in a stock, besides measuring what percentage of return a company pays out in form of dividend.
The insurance indexes is home to several companies selling below one naira and thus have higher chances of significant price appreciation. With this in mind, the dividend yield of such companies is an added advantage to the high possibility of capital appreciation. It could also be a guarantee against the volatility of such stock priced.
Linkage Assurance is the next best deal for investors looking at the insurance index as its dividend yield is 9.09 percent. Other companies with close yields are Mutual Benefits Assurance (8.33%), Law Union and Rock (7.84%), CRe (7.33%), AIICO (6.67%), Custodian Investments (6.67%) and NEM with 4.35 percent.
Compared to the broad equities market, only a few companies are selling at prices that allow for a dividend yield greater than inflation and such companies are Zenith Bank with 13.02 percent dividend yield and GlaxoSmithKline who paid special dividends of N7.1 naira for every ordinary share and put their dividend yield at 69.44 percent as at the close of market on Monday.
While high dividend yields are attractive, they may come at the cost of growth potential. Every naira a company is paying in dividends to its shareholders is a naira that company is not reinvesting to grow and generate capital gains.
IFEANYI JOHN
