Dividend yield on the Nigerian Stock Exchange (NSE) has in recent times continued to increase as a result of the persistent free-fall in equity prices, owing to a bouquet of factors. The ravaging Coronavirus, a global pandemic, has further propelled the panic selloffs in the local and international markets.
The impact of the virus seems heavy, killing more stock markets and economy than people across the globe, sending panic waves around the world, more devastating than the financial meltdown of 2008.
Nigerian stocks hit new lows as the NSE’s benchmark index hit a new 11-year low on a huge traded volume that suggests that investors are dumping their shares, in their frenzied bid to cut their losses. So far, the Nigerian market has lost all of 13% in just four trading sessions of the week, just as over N1.82trillion has been shaved off the market capitalization within the same period.
Meanwhile, with the resultant drop in the price of crude oil at the international market, the Nigerian economy is already challenged as the implementation of the 2020 budget under serious threat.
The Central Bank of Nigeria (CBN), on Thursday night, moved to douse tension over rumours and fear of a possible Naira devaluation arising from the oil price slump, a situation that triggered the demand for the US Dollar. This ensuing fear weakened the exchange rate of the Naira against major global currencies.
Without any doubt, the Nigerian economy is challenged from all sides, hence the renewed investor option on listed equities. Despite CBN’s efforts to drive economic growth and development through the low-interest rate regime, a situation that is first in the history of Nigeria, even as the lack of investor protection and corporate governance are hurting the market.
The prolonged market downturn has, however, boosted yield, especially of blue-chip stocks and other dividend-paying equities across the different sectors of the market.
Banking and other financial services stocks are powerhouses of any economy, just as they are intermediaries and agents of development. For investors interested in buying high dividend-paying stocks with yields above the prevailing inflation rate, the table below points where to look for companies that have seen the biggest jumps in yield over the recent weeks.
Dividend investing has become necessary in the post-general election Nigerian stock market that has been characterized by a free-fall in equity prices, which has eroded investors’ capital and confidence in the entire economy due to weak macro-economic indices and a lack of development and growth-stimulating policies from government to offer the much-needed direction.
Dividend Yield at any time measures how much cash flow you as an investor are getting for every Naira invested in a company’s equity. It also tells what percentage of net profit a company pays out in the form of dividend.
This is one of the main factors you need to consider when investing in dividend-paying stocks, as a higher Dividend Yield has been considered desirable among investors today.
Share prices are low due to impacts of the general market downturn, just as payouts are different from weak earnings performance-driven low prices.
Note that, earnings determine what any company will pay because ‘no earnings, no dividend.’ The Nigerian Stock market’s average Dividend Yield currently stands at 6.12%, while those of several stocks are trading well above the average yield and the 364-day money market yields.
That is why you as an investor or trader should allow the current Earnings Per Share and the Dividend Yield percentage guide you as you study the numbers in the table below in relation to the prevailing market price.
We expect a slowdown on the losing momentum as low stock prices and high dividend yields continue to attract buying interests, which cannot be resisted by smart money, even as more audited corporate earnings hit the market, in the days ahead. This is despite the likely continuation of the mixed intraday movements in the midst of selloffs, as investors increasingly position in undervalued stocks ahead of more dividend declaration. This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.
Also, investors and traders are positioning in anticipation of the 2019 full-year earnings reports, amidst the changing sentiments in the hope of improved liquidity and positive economic indices which may reverse the current trend.
We see investors focusing on the upcoming full-year earnings season, targeting companies with strong potential to grow their dividend on the strength of their earnings capacity.
Again, the current undervalue state of the market offers investors opportunities to position for the short, medium and long-term, which is why investors should target fundamentally sound, and dividend-paying stocks for possible capital appreciation in the New Year.
This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Traders & Investors Summit held in Lagos.
Also, traders and investors need to change their strategies, because of the NSE’s pricing methodology, the CBN directives and their impact on the economy in the nearest future.
Meanwhile, the home study packs of our Invest 2020 Opportunities and Trade Ideas Summit, containing the 10 Golden Stocks for 2020 are available. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467