Investogist - Dividend Stocks to watch on the Nigerian Exchange ahead of 2023

On Friday, United Capital Plc released its unaudited consolidated and separate financial statements for period ended 30 September 2022, posting an impressive N7.71bn profit for the period.

On Yochaa’s list of best stocks on the Nigerian Exchange Limited by Dividend Yield, United Capital Plc (NGX: UCAP) ranks #1, with a 5 year average yield of 13.54%.

In this series of “Dividend Stocks to watch on the Nigerian Exchange ahead of 2023,” we take a look at the prospects of UCAP’s 2022 financial year dividend payout to Shareholders.

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United Capital Plc, the former UBA Capital Plc, is a consistent dividend paying company through and through, as it has paid dividend every year since listed on the Stock Exchange having split from United Bank for Africa Plc (NGX: UBA).

For 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021, it paid out dividends of N0.20, N0.35, N0.50, N0.35, N0.30, N0.50, N0.70 and N1.50 respectively.

Can UCAP match the N1.50 Dividend it paid for the 2021 financial year?

Investogist Analysts have analyzed the historical trends of United Capital Plc and can infer a mathematical answer to this question.

Armed with the recent 9 months financial statements, we were able to project what the full year profit of the company will be.

With a projected profit for the full year period to end on 31 December 2022, and a 5 year historical data on the percentage of its annual profit UCAP pays as dividend, we infer how much it will pay for this year.

Our analysis of the past 5 years shows that UCAP has consistently recorded good profits in the last quarter of the financial year (October to December).

2017: It reported a profit of N3.27bn for the 9 months (9M) ended 30 September 2017, and reported a profit of N4.36bn for the full year period ended 31 December 207. This represented a 33% increase.
2018: In this year, UCAP outperformed the preceding year, increase the 9M figures by 41%, from N3.08bn to N4.33bn.
2019: The trend got even better as the full year profit stood at N4.97bn, an impressive 80% growth from the N2.76bn it reported for the 9M period of the same year.
2020: The results of 2020 was extraordinary even by UCAP’s standard, as the full year profit went up by 126% to N7.81bn when compared with the N3.46bn it reported in the 9 months period.
2021: The gap between 9M and Full year profits moderated to 89%, with the year profits standing at N11.25bn, while the 9M profit stood at N5.96bn.

In all, UCAP has demonstrated a very consistent increment in its full year profits, from N4.36bn in 2017 to N11.25bn in 2021, an impressive 158.02% over the 5 years in review.

We used the average percentage difference between the 9M and Full year profits as our basis for projected the 2022 full year profit. This average difference stands at 74%.

Investogist analysts therefore estimated that for the full year period to end 31 December 2022, United Capital Plc will report a profit of N13.39bn.

Having established a figure for the expected full year profit, we proceeded to estimate what the dividend would be. We considered two paths the Board of Directors may take in proposing a dividend.

Path 1: The average percentage of the company’s profits paid out as dividend.

2017: Out of a profit of N4.36bn, the company paid a dividend of N0.35 for every one of its 6,000,000,000 outstanding shares. The total amount paid as dividend amounted to 48% of the company’s profit for the year.
2018: Despite maintaining similar profit levels, the company paid a dividend of N0.30, representing 41% of the N4.33bn profit earned in the year.
2019: With profit going up to N4.97bn, the company increased its dividend to N0.50, thus paying out 60% of its profit as dividend.
2020: With profit still going up, standing at N7.81bn in the year, the company increased its dividend to N0.70. This amounted to 54% of its profit for the year.
2021: This was a year of mega dividend for shareholders of United Capital Plc, and equally a record breaking profit haul. With a profit of N11.25bn, UCAP paid a dividend of N1.50, which took 80% of its profit.

We calculated that the company’s 5 year average percentage of its profit paid as dividend is 57%, and thus project that the Board of Directors’ dividend proposal will fall in this region.

With a projected full year profit of N13.39bn, we expect UCAP to pay 57% of this a dividend, which will amount to N1.25 dividend per ordinary share.

Establishing a 10% range on our estimation, we can project that UCAP Shareholders will receive a dividend between N1.00 and N1.50 for the 2022 financial year.

Path 2: The Board of Directors maintain the pattern used in declaring 2021 dividend.

For the 2021 financial year, UCAP used 80% of its profit to pay dividend to Shareholders, should the Board tow the same line, the company will pay 80% of our projected profit of N13.39bn.

On this path, we project a dividend of N1.80 per ordinary share held by Shareholders.

Establishing a 10% range on our estimation, we can project that UCAP Shareholders will receive a dividend between N1.50 and N2.00 for the 2022 financial year.

Should I invest in United Capital Plc?

Despite the bearish sentiments pervading the Nigerian Exchange Limited ahead of the 2023 general elections, the share price of United Capital Plc is still up 14.07% year-to-date, as it closed at N11.35 at the end of trading on Friday.

The share price is still significantly up, at 15.23% over the 1 year, 224.29% over 2 years, 440.48% over 3 years, and 273.36% over 5 years.

At its current price, a dividend of N1.00 will return a Dividend Yield of 8.8%, N1.50 dividend will give a yield of 13.2% and a dividend of N2.00 will give a yield of 17.6%.

Although the inflation has risen to above 20% and UCAP’s dividend yields in all scenarios trailing behind it, from a dividend perspective, this is still amongst the best one can get.

There is still the added addition of UCAP share prices enjoying capital appreciation as the financial services company continue to churn out impressive results.

We therefore have a BUY rating on UCAP stocks, however the Investor should be prepared to take any opportunity the bear market may present to buy these shares at even lower prices.

Note: The dividend yield is a financial ratio that tells you the percentage of a company’s share price that it pays out in dividends each year.