In an effort to find a dividend stock that is both high-yield and reliable, I’ve widened my search abroad.
While most of my choice companies on the London Stock Exchange (LSE) are based in the UK, now and again I find a promising LSE-listed company based abroad. Often these businesses don’t qualify as FTSE constituents and, as such, get overlooked. But occasionally I find a gem.
Sometimes, companies that promise unrealistically high dividends have an inconsistent track record of making payments. Either that or their share price is negatively affected because the high dividend payments mean they fail to invest adequately in the business.
However, one far-flung LSE-listed company with a high dividend yield caught my attention – Halyk Bank of Kazakhstan (LSE:HSBK).
Casting my net abroad
The 100-year-old bank provides investment, corporate, and retail banking services to individuals and businesses in Kazakhstan, Russia, Kyrgyzstan, Tajikistan, Georgia, and Uzbekistan. It’s the largest bank in Kazakhstan, with 570 branches and an extensive list of services, including securities trading, forex, property management, and insurance.
But what mainly caught my eye was the impressive 15% dividend yield with a 41% payout ratio. Statistics like these usually set off my scepticism radar but Halyk Bank seems to operate a solid business, with a reasonable balance sheet and impressive earnings.
Admittedly, there was some instability when Halyk Bank first started paying dividends. Notably, the bank failed to pay any dividends in 2016 and 2017. However, since 2018, payments have become increasingly consistent with a yield that’s grown year on year from 6% to 15%.
Balance sheet
As a financial institution, Halyk Bank does have a few red flags on its balance sheet. As is typical with banks, the loan situation is of critical importance. Unfortunately, Halyk has quite a high level of bad loans at 7.8% and no reported allowance for bad loans.
This puts the bank in a risky position if it finds it can’t collect from debtors.
On the plus side, the bank’s £3.82bn in equity far outweighs its debt of £2.73bn. This leaves it with an acceptable 72% debt-to-equity ratio. Earnings grew at 25% over the past year and are forecast to continue growing at around 12% per year.
However, revenue is only forecast to grow at 2.8% – below the UK average.
In regards to the wider sector, Fitch Ratings has maintained a neutral outlook for EMEA Islamic banks in 2024. The agency says growth is generally back to pre-pandemic levels, with quality expected to remain stable and profitability to continue.
Tapping emerging markets
A relatively unknown bank in a foreign country might not be everyone’s first investment choice but I like my odds with Halyk Bank. It has a long history without any notable controversies and could be highly profitable if dividend payments remain consistent.
I believe Halyk Bank shares would add an extra level of diversity to my portfolio, exposing me to a burgeoning foreign market that has potential for growth.
Now I just need to find a broker that deals in securities listed on the LSE’s International Order Book.
