Monday, October 03, 2016 9.20am / Proshare Research
To conservative income investors, dividend investing appears so simple, but it is not so. Dividend Investing requires good understanding of the technicalities involved as we would share in this report, and thus should be treated with every sense of responsibility. The most important thing to note in stock investment is that investors should not increase their exposure with dividend investing approach.
A cursory review of stocks listed on the Nigerian bourse between September 27, 2011 and September 27, 2016, revealed that Nigerian stocks had grown by 41%, thereby indicating an average of 8% yearly growth in the last five years. This suggests unimpressive outlook if we are to consider or juxtapose this with inflation figures within the same period under review.
Data from the inflation table above (as obtained from the National Bureau of Statistics) indicates that income investors', particularly the portfolios without diversification into fixed income assets, are not likely to be in good shape.
This is not to discourage risk-averse investors from investing in the Nigerian stock market but to enlighten conservative income investors on the need to consider dividend consistency rate along with payout ratio and free cash-flow pattern in picking dividend-paying stocks. On this note, our report would focus on an analysis of the dividend history and consistency rate of quoted companies in the last 5yrs.
Our analysis reveals that not much attention should be given to dividend yield, which is a function of price- the lower the price, the higher the yield. A better understanding of what drove price lower needs to be considered in picking dividend-paying stocks.
Having said that, the current state of the economy, that is, recession may incite companies to cut-down on dividend payout to investors, as a way of building up their retained earnings to weather the recession storm, which may make dividend stocks less attractive going forward.
Going by history, some large CAP companies had not only reduced payout ratio but nearly stopped paying dividends regularly, the recent real-example is FBN Holdings Plc. Though, no company is immune to industry and financial disaster, investors need to be wary of High dividend yield. Consistency rate, payout ratio and free cash-flow as revealed in this report should be taken as key indicators or compass hence forth.
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For: Proshare Editorial Board
Olufemi AWOYEMI Reshu BAGGA
CEO Proshare COO Proshare
1. SEC Proposes New Rule on Application of 12 Years and Above Unclaimed Dividends
2. Dividend Warrants Acceptance into Savings Accounts
3. CBN Issues Directives on the Removal of Fixed Interest Rate on Credit cards
4. SEC Publishes e-Dividend Mandate Activation Form of Various Registrars
5. E-Dividend will reduce Infractions
6. Implementation of E-Dividend Mandate Management System (e-DMMS) Portal
7. The Launch of the New e-dividend Mandate Management System - TNI Q3/E5
8. CBN Mandates DMBs to Equip All Branches to Treat E-dividend Mandate Form
9. CBN Releases Exposure Draft on Standards and Guidelines on Electronic Channels Operations in Nigeria
10. CBN Releases Exposure Draft on the Guidelines on Transaction Switch in Nigeria
11. Improved Brokers Supervision Will Benefit the Market - TNI Q3/E12
12. Nigerian Stock Market and Dividend Paying Stocks in 2015 - TNI Q3/E11
13. Q2'15 Financials and Level of Compliance - TNI Q3/E10
14. The Launch of the NSE Premium Board and Its Tracking Index - TNI Q3/E9
15. Investors' Protection Fund, Infractions and Adequate Compensation - TNI Q3/E8
16. SEC restrictions on dealings in securities of unlisted public companies