How to Read a Share Before Buying: P/E Ratio, EPS and Dividend Yield Explained

Updated 28 October 2026

Before you buy a share on the Nairobi Securities Exchange (NSE), work out three numbers: earnings per share (EPS), the price-to-earnings ratio (P/E) and the dividend yield. EPS tells you how much profit the company made for each share. P/E tells you how many shillings you are paying for each shilling of that profit. Dividend yield tells you what cash return the dividend gives you at today’s price. Together they tell you whether a share looks cheap, expensive or simply risky.

None of these needs special software. You need the share price (from the NSE or your broker’s app) and the company’s latest results, which every listed company must publish. This guide shows each formula with worked examples, the traps Kenyan investors fall into and a checklist to use before you place an order.

The Three Numbers at a Glance

Earnings Per Share (EPS)

EPS is profit after tax that belongs to ordinary shareholders, divided by the number of ordinary shares in issue. Listed companies print it in their results, so you rarely need to calculate it yourself, but knowing how it is built helps you spot problems.

Worked example (illustrative figures): a company makes KSh5bn profit after tax and has 1bn shares. EPS is KSh5bn ÷ 1bn = KSh5 a share.

What to Watch With EPS

• Basic versus diluted EPS. Diluted EPS assumes extra shares from options or convertible instruments. If the two differ a lot, use diluted.
• One-off gains. A land sale or a tax credit can push profit up for one year only. Read the notes before you treat a jump in EPS as growth.
• Share splits and bonus issues. These increase the number of shares and lower EPS without changing the business. Compare years on the same share count.
• Half-year figures. Many NSE companies report every six months. Do not compare a half-year EPS with a full-year one. Add the last two halves to get a trailing 12-month figure.

Price-to-Earnings Ratio (P/E)

P/E is the share price divided by EPS. It shows what the market is willing to pay for each shilling of profit.

Worked example (illustrative figures): the share trades at KSh40 and EPS is KSh5. P/E is 40 ÷ 5 = 8. You are paying eight times one year’s profit. Put another way, if profit stayed flat, it would take eight years of earnings to equal the price. The inverse, 5 ÷ 40 = 12.5%, is the earnings yield, which you can compare with what a Treasury bill or money market fund pays.

Is a Low P/E Good?

Not always. A low P/E can mean the share is cheap. It can also mean investors expect profits to fall, the company is heavily indebted or its dividends are unreliable. A high P/E can mean the market expects strong growth, or simply that the share is overpriced. Use P/E to compare:

• the same company against its own history, and
• companies in the same sector, for example one bank against another, not a bank against a telecoms firm.

Our list of companies listed on the NSE by sector helps you find the right peers.

When P/E Does Not Work

If a company made a loss, EPS is negative and P/E is meaningless. Look at revenue, cash flow and debt instead, and be careful: loss-making shares on the NSE can be hard to sell.

Dividend Yield

Dividend yield is the dividend per share divided by the share price, times 100. Many Kenyan investors buy shares mainly for dividends, so this is often the number they look at first.

Worked example (illustrative figures): the company pays a total dividend of KSh3 a share for the year and the share costs KSh40. Dividend yield is 3 ÷ 40 × 100 = 7.5%.

Remember Withholding Tax

Dividends paid to Kenyan resident individuals are subject to withholding tax, which the company deducts before paying you, so the cash you receive is lower than the headline dividend. Check the current rate on the Kenya Revenue Authority website and work out your yield on the net amount.

Payout Ratio Shows Whether the Dividend Can Last

Using the same illustrative figures, the payout ratio is 3 ÷ 5 × 100 = 60%. The company pays out 60% of profit and keeps 40% to grow. A payout ratio above 100% means it is paying more than it earned, which cannot go on for long unless profits recover. To see how real dividends have moved over time, look at Safaricom dividend history, KCB dividend history and EABL dividend history.

Putting the Three Together: Two Shares Compared

The table uses illustrative figures for two imaginary companies in the same sector.

Company A looks better on every line. Company B costs 20 times its profit and pays out more than it earns, so its dividend is at risk unless profits grow quickly. Company A still needs checking: why is the market pricing it so low? Read its results commentary, debt levels and any profit warning before deciding.

A Simple Checklist Before You Buy

1. Get the latest full-year and half-year results from the company’s website or the NSE announcements page.
2. Note the basic and diluted EPS, the dividend per share and any one-off items.
3. Calculate P/E, dividend yield (after withholding tax) and payout ratio using today’s price.
4. Compare them with the company’s last three to five years and with two or three sector peers.
5. Check how often the share trades. A thinly traded share can be hard to sell at a fair price.
6. Compare the earnings yield and dividend yield with low-risk options such as Treasury bills or a money market fund. See Sacco vs money market fund and our guide to the best investments in Kenya.
7. Understand how orders and settlement work before you buy. See NSE trading hours and how a share trade settles.

Common Mistakes Kenyan Investors Make

• Chasing a high yield after the price crashes. A falling price pushes yield up. If the dividend is then cut, the yield disappears.
• Buying just before the book closure date for the dividend. Share prices usually drop by about the dividend amount once the share goes ex-dividend.
• Using old EPS. Always use the latest 12 months of earnings.
• Comparing across sectors. Banks, telecoms, manufacturers and insurers trade on very different P/E levels.

Frequently Asked Questions

What is a good P/E ratio for NSE shares?

There is no single good number. Compare a share with its own history and with companies in the same sector. A low P/E may be cheap or may signal trouble.

How do I calculate dividend yield?

Divide the annual dividend per share by the current share price and multiply by 100. For example, a KSh3 dividend on a KSh40 share is a 7.5% yield.

Where do I find EPS for a Kenyan company?

In its annual report or results announcement, usually labelled basic and diluted earnings per share. Listed companies publish these on their websites and through the NSE.

Is dividend yield taxed in Kenya?

Dividends are subject to withholding tax deducted at source. Check the current rate with the Kenya Revenue Authority.

What is the difference between P/E and earnings yield?

Earnings yield is the inverse of P/E: EPS divided by price. A P/E of 8 equals an earnings yield of 12.5%.

This guide explains standard valuation formulas. The company figures in the worked examples are illustrative numbers chosen to show the arithmetic, not data for any real NSE company. For real earnings and dividends, use the company’s published annual report or the results announcement it files with the NSE. Checked October 26, 2026.