UBA Stock: The Dividend Income Stock With Little Risk

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This dividend income section of my blog is focused on selected stocks that offer a double-digit dividend yield and have rewarded shareholders handsomely in the last 4 – 5 years and may still increase dividend per share in years to come.

Why you should add UBA to your dividend income portfolio now.

If you had bought UBA around ₦4 – ₦5 per share, your dividend income as a long-term investor would be a paltry 2.5% of your investment in the year of purchase. Did you also know that the same dividend income now pays some of the bank’s shareholders a whopping 21.25% today? A return that clearly beats Treasury Bill, Bond and Bank Fixed Deposit.

UBA is one of the banks that had, not only be paying dividend consistently but also grew per share payout from 10k in 2014, 60k in 2015, 75k to 2016 to 85k in 2017 and 20k per share in the first half of 2018.

This is how dividend investing makes one a millionaire which is the key reason I decided to add “dividend income stock recommendation” to this blog.  The idea is to look for dividend income stocks with yields in the double-digit range.

See – How I pick good dividend income stocks

Let’s review the recent performance of UBA:

As of this writing, UBA’s stock year to date return is -21.36%. The stock, from dividend income perspective and at a market price of ₦8.1, currently offers double-digit yield above 10% and is poised to double in 4 – 5 years if it maintains the annual dividend per share growth.

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In the last one month, the bank’s stock is up by 1.25% as investors looking for long-term stocks with attractive yield pile up more units of bank shares at an undervalued price of ₦8.

Recent Result

Results for the half year ended June 2018 show that interest income grew from ₦154 billion in 2017 to ₦187 billion in 2018 while interest expenses increased to ₦76billion (from ₦53billion) as the bank looks to attract fixed deposit customers. Overall, the bank’s customer deposit increased from ₦2.7 trillion to ₦2.9 trillion.

Profit before tax jumped from ₦57.5billion in 2017 to ₦58 billion in 2018. Profit after tax rose marginally; from ₦42.3billion in 2017 to ₦43.7 billion in 2018. From the result, UBA showed improved performance despite the drop in yield on fixed income instruments, thanks to its Africa-focused strategy.

Technical Analysis

Technically, UBA stock price is below its 20-day price of ₦10.49 and 50-day moving average price of ₦9.5 which suggest that investors had been selling the stock due to general market sentiments. Long term investors might have renewed their buying interest as the price had just found a strong support at ₦7, the same level with its 200-day moving average of ₦6.3

Fundamentally, this isn’t unconnected to the attractive dividend yield opportunity since it’s a dividend income stock.

Valuation

UBA reported a 2018 half year EPS of ₦1.23, which is 1.6% growth over the EPS of ₦1.21k in the comparable period (2017). Using a discount rate of 14%, an assumed zero growth full year EPS of ₦2.2, we assign a fair value of ₦15 to the stock, which is 87% above the current share price.

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Market update

No recent news.

Recommendation

We assign a BUY rating on UBA for long term investors.

About UBA

United Bank for Africa (UBA) Plc is a financial services group in sub-Saharan Africa with presence in Africa, the United Kingdom, the United States, and France. The Company is a financial institution offering a range of banking, pension fund custody and other financial services to customers in retail, commercial and and corporate segments of the African market.

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Hi!, I am Oge, a freelance stock research analyst. I am here to share practical little known stock market and related investment opportunities you can bank on. If you want to be among the 1% of investors that make a real profit from Nigeria stock market, do visit this blog for independent stock analysis and price forecast.

I use stock data and chart analysis to help first-timers learn stock market investing, pick the right stocks and become profitable traders. When I am not trading stock, I spend my free time studying Rhapsody of Realities.