In a world of low interest rates, equity income investing provides a means through which investors can generate real income growth in portfolios thqt will help them meet current and future income needs.
Historically, dividends have been a meaningful component of equity total returns. While the proportional impact to total returns from dividends varies meaningfully in the short-term, over the long-term, the significant benefit from the compounding effect of dividends’ stable and consistent return stream is undeniable.
In the more recent era, characterised by historically low bond yields, dividend income from equities has grown in importance. Dividends are a type of payment used by companies to share profits with their shareholders.
In the Nigeria capital market, dividends may be paid out on a quarterly, example SEPLAT Energy; semi-annual, twice a year; or annual basis, which is one way for investors to earn a return from their investment.
Investing in the stock market can give you two types of returns. The first is the capital appreciation that you get when the value of the stock rises. The second is the dividend income that many companies issue as a kind of reward to shareholders from the profits the company makes during the financial year.
Dividends can create an additional source of income and give you liquid funds if you do not want to redeem your stockholding. Dividends are payments made by companies to their shareholders based on the number of shares they own. Dividends are usually paid when a company has excess cash that is not being reinvested into the company. This excess cash is divided up among shareholders and paid out to them.
Meanwhile, the Nigerian Exchange (NGX) Limited has entered the peak of the earnings reporting season that comes with dividend announcement and corporate actions for companies that opted to release their audited scorecards before the end of February.
Companies like Seplat Energy, Dangote Cement, Dangote Sugar Refinery, NASCON Allied Industries, Zenith Bank, Stanbic IBTC Holdings, Access Holdings, United Bank for Africa (UBA), MTN Nigeria Communications (MTNN), Guaranty Trust Holdin Company (GTCO), Fidelity Bank, Geregu Power, BUA Cement, BUA Foods, Nestle Nigeria, among others, have demonstrated strong fundamentals and consistent impressive earnings releases.
Investors who want to leverage dividend paying stocks can look into these mentioned stocks and others in the financial services sector due to expectations of strong top-bottom line growth. Meanwhile, dividend scouting investors can also cherry-pick stocks ahead of full-year dividend declarations.
Speaking on this, the chief operating officer of InvestData Consulting Limited, Mr. Ambrose Omordion said “some Nigerian stocks have continued to show potential for high dividend yields. Specifically, based on the analysis of dividends paid and share prices in the 2022 financial year, about 21 stocks offered dividend yields exceeding 10 per cent.
“These stocks span various sectors, including construction/real estate, services/transport-related, financial services, manufacturing, telecoms, and consumer goods.”
According to Omordion, for income-focused investors, stocks with a consistent track record of high dividend yields can be a promising investment strategy.
“Alll eyes are on such early filers like United Capital, Africa Prudential, Zenith Bank, Nigerian Breweries, MTN Nigeria, GTCO, Infinity Trust Mortgage Bank, and Dangote Cement, among others,” he said.
He however said: “even though high dividend yields are attractive for income-oriented investors, it is important to consider the long-term growth prospects of the companies. Look for stocks that not only offer good dividend yields but also have the potential for capital appreciation.”
Knowing Dividend Paying Stocks
The first step in hunting for and evaluating/analyzing dividend paying stocks is to look for list of dividend stocks in Nigeria. There are some sources that provide information on dividends declared and/or paid within a given time period.
Dividend Yield; From the list of dividends, compare the dividend yields (where available) among the stocks. The dividend yield, displayed as a percentage is the amount of money a company pays shareholders for owning a share of its stock divided by its current stock price.
In looking for dividend stocks, it is advisable to pay attention to the dividend payment history of companies because you would not want to invest in companies that pay dividends once in a while rather than consistently.
As an investor with the goal of maximising investment returns, you should not only pay attention to consistency of dividend payments as in dividend payment history, also take note of dividend growth rates. Another important variable that you should pay attention to when selecting dividend stock is the payout ratio.
