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September 22nd, 2014

Deriving Income from Equity.



With excess liquidity hovering around TT$6.5Bn and headline inflation at historic lows, investors are finding difficulty in generating attractive fixed income returns as local yields are low.  The Trinidad and Tobago Sovereign yield curve, as shown below,whichshows the differentrisk free yields (the green dots on the chart)across the maturity spectrum and this evidences the prevailing low interest rate environment.

Chart 1 –Trinidad & Tobago TTD Sovereign Yield Curve

Source: Bloomberg

Naturally, investors continue to search for the highest possible yield with the lowest possible risk and in this quest may decide to avail themselves of opportunities outside Trinidad & Tobago.  These actions are therefore not without consequences for the value of the TT Dollar against other currencies.

Notwithstanding the foregoing, it is our considered view that value opportunities may be found in the local equity market, and once they are measured from both a reward and risk perspective,attractive levels of equity income can be derived.  One of the most endearing features of publicly listed companies is that many set aside a percentage of their income for distribution to their shareholders as dividends.  By focusing on this aspect of the equity structure, local investors can obtain a yield superior to local fixed income instruments such as a Trinidad and Tobago treasury bill, a fixed term deposit or a fixed income mutual fund.

The annual dividend yield is the annual dividend per share expressed as a percentage of the share price and is calculated as follows:


Source: Investopedia

For example, if investors were to calculate the annual dividend yield of the highest dividend yielding Trinidad and Tobago stock, National Flour Mills (NFM) investors would need:

Table 1-Dividend Schedule of National Flour Mills

Payable Date Amount (TT$)
23-Sep-13 .08
30-Sep-11 .05
12-Sep-05 .05
13-Sep-04 .07

Source: Bloomberg

Market Price of NFMas at September 9th 2014 = TT$1.30

Annual Dividends Per Share =TT$0.08

Annual Dividend Yield = 0.08/1.30 =6.15%.

The top ten dividend yielding stocks in the local stock market as at September 9th 2014 are presented at table 2.

Table 2-Top Ten Dividend Yielding Stocks (Composite Index)

Ticker Security Name Annual Dividend Yield (%)
SIJL Scotia Investments Jamaica Ltd 7.63
NCBJ National Commercial Bank Jamaica Ltd 6.98
NFM National Flour Mills 6.15
FIRST First Citizens Bank Ltd 4.61
JMMB Jamaica Money Market Brokers 4.42
WCO West Indies Tobacco Ltd 4.12
SFC Sagicor Financial Corporation 4.11
GHL Guardian Holdings Ltd 4.00
FCI First Caribbean International Bank 3.85
GKC Grace Kennedy 3.63


Average Dividend Yield


Additionally, with a focus on Trinidad & Tobago listed stocks, the top ten Trinidad & Tobago dividend yielding stocks are presented in table 3.
Table 3-Top Ten Trinidad and Tobago Dividend Yielding Stocks (All T&T Index)

Ticker Security Name Annual Dividend Yield (%)


National Flour Mills



First Citizens Bank Ltd



West Indies Tobacco Ltd



Guardian Holdings Ltd






Republic Bank Ltd



Scotia Bank Ltd



One Caribbean Media Ltd



Unilever Caribbean



Guardian Media Ltd



Average Dividend Yield


When one compares the Trinidad and Tobago 1-year yield (as seen in the yield curve above) to the average annual dividend yields one sees a difference of at least 3.50%.  One can also note the differences between the average dividend yield and current local deposit rates and fixed income mutual fund yields.

While dividend yields appear extremely attractive compared to short term fixed income instruments and can replicate the features of some fixed income instruments, there are inherent risks and responsibilities.  These include:

  • The dividends are dependent on the profitability of the company.  Investors should thereforecarefully analyze the performance of a company before deciding on the acquisition of its shares.
  • Theshares that some investors may want to acquire may not be readily available in the market.
  • Changes in the market price of the equity alter its dividend yield. 
  • When the local interest rate environment picks up,dividend yieldswould comparatively seem less attractive given their inherent increased risk profile.

Despite the risks identified, a dividend yield strategy is an alternative for acquiring income over a period of time.  In the prevailing environment investors can pick the top dividend yielding stocks and have the potential to earn income as much as twice as much as they would in a fixed income security over the same period of time given current conditions.