United Bank for Africa (UBA) Plc has grabbed the attention of investors by declaring a record-breaking interim dividend of N2 per share for the first half of 2024—a substantial 300% increase compared to the N0.50 per share declared in the same period last year.
Notably, this audacious move was taken despite a slight decrease in profit after tax (PAT) and UBA’s fourth-place PAT ranking among the FUGAZ banks (FBNH, UBA, GTCO, Access, and Zenith). This is particularly noteworthy in light of the directive from the Central Bank of Nigeria (CBN) that limits foreign exchange revaluation gains—a significant source of profit for the banking industry—for dividend payments.
UBA appears to be demonstrating confidence in its long-term financial stability and fundamental business performance by paying out this significant dividend. On the other hand, it might be a calculated move to preserve investor trust in a situation where rising interest rates might persuade investors to switch to more stable fixed-income securities.
With a compound annual growth rate (CAGR) of 29.36% over the last five years, UBA’s dividend growth has been remarkable, demonstrating the bank’s persistent efforts to increase shareholder returns. UBA distributed N219.560 billion in dividends between 2019 and 2023, averaging a payout percentage of 24.14% every year.
Considering that UBA’s average payout ratio is marginally lower than the FUGAZ average of 28%, this performance is noteworthy when contrasted with the average dividend CAGR of 12.98% for the FUGAZ banks. The bank’s practice of reinvesting a sizable amount of profits to support future growth is demonstrated by its average retention ratio of 76%.
UBA reported a payout ratio of 17.03% for the first half of 2024, which is significantly higher than the FUGAZ average of 5.77% and a significant increase from 4.24% for the same time in 2023.
Although PAT decreased by 0.51% from N403.647 billion in the first half of 2023 to N401.577 billion in the same period in 2024, UBA’s substantial dividend is indicative of its strong financial position and tenacity. The bank may be indicating to the market that it anticipates sustained solid profitability even in the face of difficult macroeconomic conditions by paying out such a large interim dividend.
UBA’s strong performance measures, which include a projected return on equity (ROE) of 30% for 2024 and 41.2% for 2023, bolster this opinion. UBA’s sustainable growth rate (SGR) was about 34.6% in 2023, with a payout ratio of 16% and a return on equity (ROE) of 41.2%. This shows the bank’s ability to maintain growth without using up too many resources.
Income-focused investors find UBA very enticing due to its 15.6% dividend yield, which is the highest of the FUGAZ banks. This is especially true in an environment where fixed-income assets are also offering good dividends, given the current high interest rates. The amalgamation of a substantial dividend yield and the possibility of a revival in share value presents investors with an alluring chance for total return.
In summary
UBA’s historic interim dividend for the first half of 2024 is a testament to the bank’s sound financial standing and dedication to providing shareholders with returns. This action seems to be a part of a larger plan to boost investor confidence, especially in a difficult economic climate where yields play a significant role in investment decisions. Investors will be keenly observing UBA’s approach as it balances its focus on expansion and sustaining large dividend payouts.
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