• Wednesday, May 29, 2024
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BusinessDay

Huge opportunities for investors as capital market slows

Investors who have watched Nigerian equities go nowhere since the beginning of the year may soon benefit from higher dividend yields as fourth-quarter trading commences and the year begins to wind down.

Equities are down -0.54 percent year to date, with the All Share Index (ASI) gaining 285.66 absolute points yesterday to close at 41,105.38. The bearish trend in equities has pushed lower the entry price for most stocks, effectively giving them higher dividend yields.

“We believe the current lull in the market presents attractive entry for investors that chose to play the dividend yield strategy and other long-term focused investors,” said Abiodun Keripe, head, research and strategy, Elixir Investment, in a response to questions.

“Despite the tight operating environment in the banking sector, we maintain a neutral to positive outlook for earnings on dividends. We expect dividend yield for the Tier-1 banks at current prices should average about 8.44 percent from 7.03 percent (2013FY dividends). This mirrors about 1.41 percent dividend yield expansion,” Keripe said.

Dividends are income streams and profit distributions from companies, and often constitute the largest component of total returns on stocks.

The 20 largest firms by market capitalisation in the Nigerian Stock Exchange All Share Index (NSE-ASI) paid an average 4 percent of their share price in dividends as of last week Friday, according to data compiled by BusinessDay.

The dividend indicated gross yield implies a total payout of about N468.98 billion by the 20 firms whose cumulative market capitalisation of N11.21 trillion makes up 83 percent of total stock market capitalisation of N13.46 trillion.

With the outlook for the equities market this year looking not so promising, there are still specific names with good potential to deliver relatively good earnings for the year-end 2014 backed by strong fundamentals and sound operations, said Kayode Omosebi, analyst with UBA Capital Limited, a Lagos-based investment firm.

“Though some stocks sport attractive dividend yields, it is very much important to consider expectation of dividend by the companies before taking a decision. That said, good companies with good dividend payment history and expectation of a modest result for FY:2014 like FBNH, Guaranty, Zenith, PZ, UACN, among others, offer attractive dividend yields at current price,” Omosebi said.

Investors may place more value on First Bank Holding’s share price as its dividend yield (DY) of 8 percent is the highest among the 20 most-capitalised firms as compiled by BusinessDay. This is followed by Zenith Bank and UBA with dividend yields of 7 percent apiece. 

Dividend expectations are important incentives for equity investment, especially in a developing market like Nigeria, note Meristem Securities research analysts, adding, however, that market sentiments regarding banking counters are that there is potential of a dividends cut-back.

“It is our opinion that investors should wait till the full picture of the CBN’s new regulations are completely in view, to take position with respect to banking stocks,” said Meristem analysts.

“There are still expected headwinds that may characterise equities market performance before the end of the year, such that prices of these stocks may still trend downward; hence the time for position taking may be better in the later part of the year, due to expectations of lower prices,” they added.

More bullish analysts like Keripe say unlike trends in advanced markets, dividend is a key mover of the Nigerian equities market, with the dividend-investing strategy playing well over time.

“Even the PENCOM rule that compels PFAs to invest in companies with at least five-year dividend history underscores this strategy. Looking back into the current state of the market ‘proxied’ by the NSE All share index, which has retreated 1.72 percent month-to-date and 3.91 percent quarter-to-date, we believe this makes it a compelling case for dividend strategy investors to start positioning in the market,” Keripe said.

PATRICK ATUANYA, BALA AUGIE & IFEBI EDOZIE