Hopes for a dividend rally this year is gradually fading away after the Nigerian Stock Exchange All Share Index closed on Friday at about 2,300 points less than its year high achieved in January about a month ago. Since reaching about 29,702 points on January 20, 2020, the stock market has now declined by around 8 percent pushing many analysts to rethink their dividend induced stock rally forecast in the first quarter of 2020.
After getting off to a blistering start this year, rising about 10.6 percent within the first 20 days of the year, the stock market has now declined about 7.8 percent, bringing year to date performance for the ASI to just 2.04 percent.
However, analysis of historical performance of the stock market during the first half of the year shows that average stock performance in the first 3 months of the year has been about 0.2 percent in the last 10 years since 2009. In fact, the stock market declined 6 times in the last 10 years in Q1 as investors patiently anticipate corporate financial results for the preceding year.
According to data compiled from CBN Statistical Bulletin and Bloomberg, stock performance between March and May tell a completely different story from the first 3 months of the year as stocks tend to rally on average about 11 percent in the 2 months between March and May where a lot of companies pay dividends to their investors.
Loses made in stocks in the first 3 months are almost always completely wiped off when investors hold till May according to the data. Stock performance between January and May averaged 10 percent in the 10-year period between 2009 and 2019, showing that the dividend rally strategy has been a winning strategy in the stock market for at least the last 10 years.
While past performance is never a mirror of future performance, history may likely be repeating itself this year as stocks continue to a poor showing in the first quarter of the year as it usually has. The all share index ASI closed on Friday at about 0.65 percent lower, as stock pickers wait on the side-lines to see earnings trend before diving back into the market.
