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In an effort to find reliable, high-yielding dividend stocks, I've expanded my search overseas.
Although most of the companies I choose in the London Stock Exchange (LSE) are based in the UK, every now and then I find a promising company listed on the LSE based abroad. These companies often do not qualify as FTSE voters and, as such, go unnoticed. But every once in a while I find a gem.
Sometimes companies that promise unrealistically high dividends have an inconsistent payment history. Either that, or their share price is negatively affected because high dividend payments mean they don't invest properly in the business.
However, a remote LSE-listed company with a high dividend yield caught my eye: People's Bank of Kazakhstan (LSE:HSBK).
Casting my network abroad
The 100-year-old bank offers retail, corporate and investment banking services to individuals and businesses in Kazakhstan, Russia, Kyrgyzstan, Tajikistan, Georgia and Uzbekistan. It is the largest bank in Kazakhstan, with 570 branches and an extensive list of services, including securities trading, foreign exchange, property management and insurance.
But what caught my attention the most was the impressive dividend yield of 15% with a payout ratio of 41%. Statistics like these tend to raise my skepticism radar, but Halyk Bank appears to operate a solid business, with a reasonable balance sheet and impressive profits.
It's true that there was some instability when Halyk Bank started paying dividends. Notably, the bank did not pay dividends in 2016 and 2017. However, since 2018, payouts have become increasingly consistent with yields growing year on year from 6% to 15%.
Balance sheet
As a financial institution, Halyk Bank has some red flags on its balance sheet. As is usual with banks, the credit situation is of critical importance. Unfortunately, Halyk has a fairly high level of bad loans, at 7.8%, and no bad loan reserves have been reported.
This puts the bank in a risky position if it discovers that it cannot collect from debtors.
On the plus side, the bank's £3.82bn in equity far exceeds its £2.73bn debt. This leaves it with an acceptable debt-to-equity ratio of 72%. Profits grew 25% over the past year and are expected to continue growing at around 12% annually.
However, revenue is only forecast to grow by 2.8%, below the UK average.
Regarding the broader sector, Fitch Ratings has maintained a neutral outlook for EMEA Islamic banks in 2024. The agency says overall growth has returned to pre-pandemic levels, and quality is expected to remain stable and profitability continues.
Take advantage of emerging markets
A relatively unknown bank in a foreign country may not be everyone's first investment choice, but I like my odds with Halyk Bank. It has a long history with no notable controversies and could be very profitable if dividend payments remain consistent.
I believe Halyk Bank shares would add an additional level of diversity to my portfolio, exposing me to a burgeoning overseas market that has growth potential.
Now I just need to find a broker who deals in securities listed on the LSE International Order Book.
