No doubt, many of us have had our portfolios directly hit by the current market meltdown, some substantially so. Because of this, the past couple of months have seen investors losing over N2.5 trillion to the market depression. Confidence in the market is at an all-time low, with most investors quite happy to take any loss as they exit positions.

On the average, more stocks are on offer daily. Investors looking for a steady stream of income now have their eyes on other investment vehicles: bonds, deposits, and real estate.

The average coupon rate for a 5-year FG bond is 6% while interest on deposit averages 5.6%. No doubt in a lousy market as we currently are, when investors' risk appetite is low, premium is placed on safety. Thus, bonds and money market instruments are extremely popular in bad periods.

Yet, stocks still represent a good vehicle for steady income streams. Despite the downturn, the economy remains buoyant and this is reflected in corporate performance; companies' scorecards have been positive over the past seven months.

Over 85% of results, quarterlies, half-yearly, and annual reports released to the market have shown strong earnings growth.

And a good number of companies have declared above average dividend. Market data released by the Nigerian Stock Exchange (NSE) show that over the past 10 years, the average dividend yield of listed equities is 8.2. From 2005, dividend yield has experienced a steady growth of: 9.5 in 2005; 10.6 in 2006; 15.7 in 2007, though it has fallen to 4.3 this year.  

One smart strategy to adopt in a downturn is not to totally exit but to try and maximise your returns from different investment vehicles, including equities.

Thus, you should consider investing in bonds as well as in equities with impressive histories of rising dividend yields.

In issue 14 of our magazine, we featured an article on investing in stocks with a consistent history of dividend payment, because, really, you minimise your risk by investing in high dividend yielding stocks than investing in growth stocks.

This is so because investors are less agitated with price depreciation when they know they will continue to get a steady stream of income as dividend from the stock. So, such stocks are less volatile.

In this article we have identified five companies with solid dividend yields, based on consistent dividend payout, financial strength, growth history, dividend growth prospects, and valuation.

Guinness
Guinness, owned by Diego, one of the largest brewers in the world, is the second largest brewer in Nigeria behind Nigerian Breweries. The company has continued to innovate, regularly coming up with new products, marketing strategies and products advertising.

Its latest products include Smirnoff, Satzenbrau and Gordon Spark. Its brands are very strong and Guinness Stout and Malta Guinness both control about 35% of the beer and non-alcoholic markets in the country.

Guinness is expected to achieve an earnings growth of 23% over the next three years, and at a P/E of 17.9x, the shares are fairly valued. Its dividend yield has averaged 4% over the past five years, with an annual growth of around 7%. This is expected to continue over the next three years.

Union Bank
This bank continues to surprise many with its performances over the years. Its slowness in adapting to change, particularly the use of cutting-edge technology, made many conclude that it would soon lose a large part of its market to the aggressive and technology-driven new generation banks. This has not happened though.

To be sure, it has lost some of its market to these new banks, but its sheer size (a shareholder equity in excess of N107 billion) and conservative approach to banking have continued to endeared it to the heart of some people, who feel it is safer transacting business with it than with some of the new generation banks. Over the past 10 years, the bank has consistently grown its revenue and profitability.

This strong showing is expected to continue over the next three years, with a projected growth of over 20%, particularly as the bank is gradually embracing latest technology in its operations, which, combined with its size, will see it win back its old customers as well as win many new ones.

Union Bank has averaged 3.5% in dividend yield over the past five years, and has grown its dividend annually at 11%. The bank currently trades at 10x expected earnings, which is below its peer average of 11x earnings.  

PZ
PZ is the largest consumer goods company in Nigeria. Its product range, which is well diversified, includes pharmaceuticals (Robb ointment), confectionery (Nunu, Coast), detergent (Elephant detergent), cosmetic soaps (Venus lotion, Imperial Leather, Joy, Cussons Baby), refrigerators, air-conditioners, DVD players, etc. It recently restructured its operations and relaunched the Haier Thermocool range of household products, which has impacted its profitability.

Its historic profit level is over 20%, though there was a slight dip in 2007 due to its restructuring. PZ has returned 3.6% in dividend yield at a growth rate of 8% and is expected to grow that to a 5% yield. At a PE of 12x, and a yearly return of 27% to investors over the next three years, the shares represent a fair buy.

GlaxoSmithKline
For an industry facing stiff competition from cheap imported drugs from Asian countries and herbal drugs from alternative medicine practitioners, GSK has continued to hold its own, delivering consistent and strong performances over the past nine years. GSK has very strong brands that are market leaders in their segments: Panadol, Ribena, Lucozade, Aquafresh, among others.

It recently reinvented its Macleans toothpaste to boost its acceptability. Its dividend yield, averaging 2.5%, has been modest, though it has managed to grow it consistently. Its Q3 PE of 20x is high, though slightly above industry average.   

UACN
The company manufactures and processes food. It owns one of the largest quick service restaurants (QSR) in Nigeria. Its other businesses include logistics, real estate, and warehousing. Restructuring has seen UACN discontinuing its low margin businesses such as paper manufacturing, pharmaceuticals, and automobile and enhancing scale in its core business of food. It has broken its core business into four units to enhance capacity: UAC Foods, UAC Franchising, UAC Dairies, and UAC Restaurants. UACN's dividend yield has averaged 3.3% over the past six years.

It is expected to deliver a yield around or slightly above its historical over the next three years. It currently trades at 13x expected earnings, well below industry average of 24x.

Other stocks that look promising in terms of consistent dividend growth and payment include Access Bank, GT Bank, UBA, Zenith, Diamond Bank, Nigerian Breweries, Lafarge Wapco, Dangote Sugar, Nestle, and 7Up.

Dangote Sugar and Nestle, both in the Food, Beverages & Tobacco sector, have one of the highest dividend payout ratios in the market of 94.98% and 99.55% of profit and current dividend yields of 9.54% and 4.03%, respectively.


Access Bank, UBA, and Oceanic Bank achieved around 8% dividend yield and Zenith and Diamond well able to do around 6.5% in their last financials. NB and Wapco had 6.7% and 4.7%, respectively.