Fundamental approach in business reveals that investors value dividends paid from companies. They view this as income from stocks they invested in, considering the fact that investing in stocks is riskier than saving money in the bank. The nature of the risk involved has made investors to anticipate a higher average return on stocks to compensate for the greater uncertainty and chance of loss.
This has made dividend to remain one of the key factors that traditionally drive market activities and aids investment decisions towards stocks across the globe, and Nigerian bourse is not an exception.
It is a wise thing, as regards to smart investing, to invest in dividend paying stocks as some of the biggest profit opportunities are in dividend stocks, and investors do profit year after year. In addition to dividend payouts, these types of stocks do have growth prospects.
Aftermath the Global Crisis
The bearish sentiments recorded in the Nigerian Stock Exchange (NSE) in 2008 simply portrayed the extended effect of the global financial crisis which begins to reflect in the Nigerian market in early 2007. Prior to this period, market has experienced tremendous bullish trend.
The NSE measuring parameters, the All-Share Index (ASI) and the market capitalisation (CAP), both recorded -52.06% and ₦3.33 trillion losses respectively in 2008; the market further recorded minimal loss in 2009 with -33.58% and ₦1.95 trillion recorded in that order.
Market experienced bearish rally between 2010 and 2011 –a kind of shaky turnover trend as the ASI recorded +18.87%, amounting to ₦2.92 trillion gain in market CAP. Significant part of the gain in 2010 was erased in 2011 with the ASI recording -17.42% losses which simply amount to a loss of ₦1.48 trillion in market CAP.
In 2012 so far, market performance has been impressive. Market-making activities which started in September 2012 has also contributed positively to the performance of the Nigerian Capital Market. The ASI and market CAP have both recorded 28.68% and ₦1.96 trillion gains respectively.
Despite the market crash and the persistent bearish run on the Nigerian bourse, particularly in 2008-09 periods, companies still continue to consistently reward investors with dividend payment as this is considered as a reward to shareholders.
As corporate managers strives to increase the shareholders value by making the right investment and financing decisions which will minimise the overall cost and in return increase the firms profit, it is of good decision for investors to invest in companies that consistently pay dividends as it will guarantee a return at the end of each calendar year.
A delve into the history of dividend paying stocks on the Nigerian bourse revealed that 29 quoted firms have been consistently paying dividends for the past five years in the Nigerian Capital Market.
In 2012 so far, out of the 29 firms, 11 declared cash dividend from ₦1 and above, while the remaining 18 declared below ₦1. Nestle Nigeria Plc declared the highest dividend of ₦11.05 in 2012. Guinness Nigeria and Total Nigeria Plc followed with dividend of ₦8 and ₦7 respectively. Transnationwide Express Plc declared the lowest dividend as it recommended 0.05 kobo.
Share Price Trend
Trend analysis on the prices of dividend paying stocks showed that most of the quoted firms are currently trading in the green zone compared to what was obtainable in 2008. The Year-To-Date price analysis for 2012 revealed that 21 quoted firms are currently recording appreciation while the remaining eight are trending southwards.
NASCON Plc led the chart with +96.56%, Presco Plc and CAP Plc both followed with +96.08% and +93.10% in that order. Custodian & Allied Insurance Plc led the losers with -44.44% while Total Nigeria Plc and Conoil Plc also made the chart with -35.90% and -34.92% respectively.
The latest financials of the dividend paying stocks also buttressed the dividend argument as all the firms posted positive figures in Turnover, Profit After Tax and Net Assets.
Article by Proshare Nigeria Limited