As the Nigerian Stock Exchange (NSE) enters the earnings season, capital market analysts are of the opinion that good corporate earnings would set the tone of the stock market with quoted firms like Dangote Cement, Dangote Sugar, Guaranty Trust Bank, Zenith Bank among others, leading the pack.
Dividend has 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. The boards of directors of United Bank for Africa (UBA), Guaranty Trust Bank (GTBank), Zenith Bank, Continental Reinsurance and many other quoted companies have met, while some have scheduled meetings to approve the audited financial statement and accounts for the year ended December 31, 2017.
The meetings will, among others, consider dividend recommendation to be made to shareholders. In separate regulatory filings, the companies indicated that their directors would be meeting to review and approve the earnings report and accounts for the 2017 business year, preparatory to sending the accounts for release to the investing public at the Nigerian Stock Exchange (NSE).
The stocks market in February has been volatile, following the January rally, the market has been struggling to find direction as foreign and institutional inflow slowed down ahead of actual full-year numbers from companies’ year end results.
In January the stocks market recorded a strong start to the year with a 15.95 per cent return. Meanwhile so far in the month of February, the market had lost 4.95 per cent, reducing the Year-to-Date returns 10.21 per cent as at February 20, 2018.
Capital market analysts noted that it is still unclear where the market could be at the close of the second month of the year, even as the NSE index over the past two weeks have been struggling to recover on pre-earnings season positioning after suffering huge losses resulting from the market correction.
They however noted that an impressive full year earnings and dividend payout will drive market performance. The earnings reporting season kicked off with early filers like Nigerian Breweries reporting a 21 per cent increase in dividend payout. This may be giving, perhaps, insights into what investors should expect from consumer goods stocks that have established up trending earnings before now, as more early filers release their full year numbers this week.
Some listed companies over the years have been known as best dividend paying stocks for investors, among them are: Dangote Cement, Dangote Sugar, Nascon and Allied Industries, Nestle, Glaxosmith, Fidson, Cadbury, Zenith Bank, Guaranty Trust Bank, African Prudential, United Capital, AXA Mansard Insurance, Transcorp Hotel, NEM Insurance and Wapic Insurance.
Positive economic indicator that hit the market this month was the Consumer Price Index that maintained a downtrend as the National Bureau of Statistics (NBS) reported that January inflation rate slowed down to 15.13 per cent from 15.37 per cent in December to further confirm the nation’s recovery that had reflected in other positive economic data.
Analysts also noted that ahead of the earnings season, many sectors have so far shown potentials of higher payout due to impressive numbers released so far especially the direct beneficiaries of the Central Bank of Nigeria (CBN) intervention in the foreign exchange market that resulted in stable exchange rate regime, impacting positively on stocks in the manufacturing, banking, agriculture and healthcare sectors, among others.
The chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said the changing pattern in the market calls for changes in investors and traders strategies to play the earnings season, saying “we also expect short term positioning for fourth quarter earnings reports and volatility to continue as traders jump into the market on low price attraction ahead of dividend declaration.”
Omordion noted that the relatively low interest rates in the money market and sell-off in the bond market will boost inflow into stock market as fund managers play earnings season for quick returns target high dividend yield stocks.
“However, we would like to reiterate that investors should go for equities with intrinsic value, especially during this season that dividend payment is approaching,” he said. He advised investors to allow numbers guide their decisions while repositioning for the rest of the year’s trading activities, especially now that stock prices remain volatile amidst improving company, economic and market fundamentals.
Also, the managing director of APT Securities and Funds Limited, Mallam Garuba Kurfi said, market sentiment and expected results will determine stock market direction going forward, saying the rally seen in the market showed that traders and investors are taking advantage and positioning ahead in companies with history of half year interim dividend payment, many of which are found in Banking and Consumer Goods sector.
However, in line with recent developments on internal capital generation and dividend pay-out Ratio of Nigerian Banks, the apex bank, Central Bank of Nigeria (CBN) released further guidelines for Nigerian banks with regards to dividend payment, analysts at Afrinvest Limited said that “furthermore, given the premium Nigerian investors place on dividend paying stocks, we believe banks will strive to improve on dividend payment. Nevertheless, we do not rule out the possibility of some kneejerk sell-off reactions by investors especially in stocks that are affected by the dividend payment restrictions.”
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