Importance Of Company Size, Products, Dividend, In Equity Investing

In recent times, the Nigerian Stock Exchange (NSE) has, so far, witnessed sustained pullbacks, selloffs, and mixed sentiments after an equally robust rally, with the benchmark All-Share index recording a 5.32% gain in the month of January. The pullbacks so far witnessed this month have drastically cut year-to-date gain to 0.42%, even while there are still has two full weeks of trading. The only remedy is for price pattern and volume to price change before finding a new support level at 40,412.16bps, thereby resisting further downtrend correction as we saw in the recent week.

This is a pointer to the fact that the expected market recovery or rebound is underway as companies and market fundamentals needed to influence equity prices.

However, the release of positive information and improved macroeconomic indices in the weeks ahead will support the anticipated recovery.

For now, it is expected that collaboration between monetary and fiscal policy efforts, would boost industrial output, owing to the availability of cheap funds at a time of relatively low interest rate regime. Other factors to thank for this including reopening of the nation’s land borders and the mixed Q3, as well as the plethora of unaudited earnings reports.

The downtrend witnessed in the first two trading weeks of February was attributed to selloffs and profit-taking in high cap equities as smart money consolidate its positions in dividend paying companies.

The current high dividend yield and margin of safety should guide discerning investors seeking opportunities to grow their portfolios and wealth. Investors should, therefore, buy quality stocks even as the market declines in the face of the expected recovery.

Targeting companies with a consistent history of dividend payment on quarterly or yearly basis will not be a bad idea at this time, based on research showning that companies with a policy of consistently growing dividend payout have outperformed the market on many occasions. Dividend paying stocks put cash in your pocket, helping to counter the effects of inflation.

Unlike earnings, dividends can hardly be manipulated or faked, as they provide continuous feedbacks on a company’s performance. As time goes by, dividend investors see their income steadily grow.

You do not, however, need to wait for five or 10 years to determine whether the strategy is working.

Reinvested dividends provide a significant portion of the historical equity return and performance in any given year, but long-term returns are largely the result of reinvested dividends. Good companies grow their dividends, after all, you expect your employer to give you a raise periodically, why would you not expect the same from your investment?

Spending dividends in retirement does not harm your investment, even as a good dividend portfolio can be bequeathed to your children and grandchildren. A dividend portfolio is relatively cheap to maintain, following which we strongly advice that dividend paying stocks should have a prime spot in every portfolio, especially in times like this.

Another key factor to successful investment in this kind of market is going for companies that are leaders in their business and industry. If the company is a key player in its sector then it can raise prices to keep up with inflation, but not in every situation. The market leader can easily raise capital and survive economic downturns, considering the nature of its products and services that may have no close substitute.

Such companies are money spinners with healthy cash flows.

As an investor you may take a full position in some stocks right now at a cheap price. There are some good quality stocks around that are immune to market selloffs, meaning that after profit taking or free fall of the market, the share prices of some companies bounce back on the strength of their earnings and profit.

Performances support dividend

Despite the risk associated with it, equity investment has proven to be the best performing investment window, whether in a bullish or bearish market when compared to other investment options like bonds and fixed income instruments.

Typically, stock returns are derived from capital appreciation, dividends and even bonus issues. Dividend payment has historically accounted for 20-40% of the average annual stock market returns. A less known fact is that reinvested dividends have provided for between 44-97% of historical stock market returns.

During tough market conditions such as the lingering down market, it is important for investors to realize early enough that counting their losses will not prevent further losses. Rather than waste precious time counting your loss, as an investor, you should change your investment perception and tag along with the market as it presents itself.

Take advantage of the opportunity presented by low priced equities to position in anticipation of the full-year earnings of quoted companies in this first quarter, considering the present high dividend yields in the market.

So far, liquidity level remains tight and the government has failed to look into the plight of its citizens that have lost fortunes in the market as a result of deteriorating economic situation.

However, if you can achieve at least anything above 7.5% yield to cover the rise in inflation, you would successfully weather any short-term and long-termweakness in the market.

Here, it is necessary for investors to know that the Dividend Yield, whether based on forecast or historical dividend, is calculated by dividing the latest dividend paid with the current market price of the company. A higher yield, however, does not guarantee an increase in dividend payout. 

Source: NSE, Companies, Investdata

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