Tier one banks set to outperform with higher earnings yield

Investors who wish to maximise returns should concentrate on value stocks such as Access Holdings, FirstHoldCo, United Bank for Africa (UBA) Plc, Zenith Bank Plc, and First City Monument Bank (FCMB) Plc as they provide a buffer against market downturn as evidenced by their higher earnings yield.

For instance Access Holdings has an earnings yield of 0.78; FirstHoldCo, 0.66; UBA, 0.66; FCMB, 0.64; Zenith Bank, 0.65, according to data gathered from the NGXASI index as computed by MoneyCentral.

The numbers above show that every Naira invested in Access Corp.’s stock generates 78kobo while every Naira invested in FirstHoldCo’s stock generates 66kobo, for FCMB, 64kobo, and Zenith, 65kobo.

Fidelity Bank has an earnings yield of 0.47; Guaranty Trust Holdings, 0.41, and Stanbic IBTC Holdings, 0.28.

Earnings Yield, expressed in percentage, is calculated as annual earnings per share (EPS) divided by market price. This metric measures the anticipated yield (or return) from earnings for each dollar invested in a stock today. A higher earnings yield suggests a potentially undervalued stock or a better return compared to other investments.

The stock market has entered a bearish territory due to a massive selloff as foreign investors’ apathy towards the equity markets continues to linger.

Analysts fret that rising input costs caused by a sudden decline in the value of the currency combined with inflationary pressures as well as spiraling borrowing costs could lead to weakening corporate profits.

These uncertainties leave local investors pondering on which stocks to invest in so as to earn a reasonable return.

On Friday May 30, the Nigerian Exchange (NGX) closed on a negative note following share price depreciation in GTCO (-2.90%) and OANDO (-5.83 percent).As a result, the benchmark All-Share Index (NGX-ASI) fell by 0.07 percent to close at 111,742.01 points. YTD returns settled at 8.56 percent, while market capitalization closed at N70.46 trillion.

Nigeria’s inflation rate eased to 23.71% in April 2025, down from 24.23% recorded in March. This is according to new data by the National Bureau of Statistics (NBS).

Nigeria 10 year bond yield was 19.76 percent on Wednesday May 28, according to over-the-counter interbank yield quotes for this government bond maturity.

The NGXASI index has a year to date return of 8.56 percent as of May 30, 2025.

The combined profit of the NGX 30 firms- the lists of the most liquid and capitalised companies- spiked by 50.36 percent to N2.86 trillion in the first six months of 2025, driven largely by a reduction on foreign exchange losses as there appears to the relative calm in the foreign exchange market, but there are concerns about rising cost of production in the face of imported inflation.

Of course, companies benefited from price increases as they passed on rising costs to the consumer who bears the brunt of the pains of economic reforms.

Banks’ earnings were underpinned by a high interest rate environment that impacted positively on the net interest income even as foreign exchange gains have waned.

There are optimisms about an expanded earnings multiple on expectation that the sustenance of the bold reforms of the current administration will boost investor confidence and dividend declarations.

lenders are the most attractive valuation given as they boost the highest yield on earnings.

For instance, UBA has a dividend yield of 14.41 percent; GTCO, 11.64 percent; Access Holdings, 11.36 percent; Fidelity Bank, 10.82 percent; Zenith Bank, 10.20 percent, and Stanbic IBTC, 6.80 percent.

“We expect the economy to remain on a growth trajectory, supported by (1) improvement in the oil sector amid the government’s ongoing efforts to curb pipeline vandalism and oil theft and, (2) gradual recovery from the impact of policy reforms implemented in the prior year, as well as (3) continued resilience in the Services sector,” said analysts at Cordros Securities Limited.

“The preceding bodes well for improved corporate earnings, thus stimulating higher stock valuations, encouraging more investment in the equities market, and leading to heightened market activity and potentially increased stock prices,” said analysts from Cordros Securities.