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Debt Securities

A case for investing in dividend stocks

This articles explains some of the advantages an investors can get when they invest in dividend stocks from companies quoted on the NSE.

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dividend stocks

 

This article explains why investing in dividend stocks is a good idea.

If you are a long-term investor in the stock market then owning stocks that pay dividends constantly should always be part of your portfolio. For shorter term speculative investors dividend payments is not an important factor in their decision-making as all they are after is cashing out on the value created when the share prices increases.

This off course is what makes dividend investing a very integral part of every long term investor’s plans. Off course, long term investing does come with its own risk which is why you must own stocks that have proven records of delivering strong profitability growth and have a great competitive edge over its competitors. That provides you with a margin of safety or a hedge for your long term portfolio and gives you the grounds to enjoy the benefits of dividend investing some of which we will discuss.

Constant Returns

Dividends are one of the very few ways of earning a constant stream of income. With dividend paying stocks you can be very sure of earning a nice return on your investment periodically. As companies grow over the years your dividend is bound to increase accordingly, thus providing a good source of value creation. For example a single purchase of shares in a business can be repaid via a combination of cash and bonus dividends overtime.

[Read Also: List of Dividends announced so far in 2019 (September 2019)]

Dividend Reinvestment

With the advent and growing popularity of e-dividends it is now easy for investors to reinvest their dividends and get the benefits of compounding interest. E-dividends ensures your dividend is paid directly into your bank account following which you can now mandate your bank to transfer to your stockbroker account for reinvestment in good quality stocks.

Dividends are periodical

Dividends are periodical in nature therefore giving you the ability to plan ahead for their payment. Companies typically pay dividends once or twice a year which typically falls about the same period every year. In fact for companies that pay once a year, dividends are usually paid between March and June assuming their accounting year is the same as the calendar year.

Dividend yields continues to grow

Dividend yields are basically the amount of dividend (paid in cash) you get divided by the price at which you bought the shares. Part of the characteristics of long-term value investors is that they buy stocks that have a low P.E ratio but with an upside that can guaranty higher profits. For example if you buy a stock for N10 per share that paid dividend of 50kobo per share today your dividend yield will be 5%. Now one would expect a good income growth stock to increase its profits and dividend over the years. If in 5 years the company doubles its dividend N1 per share your dividend yield is now 10% even though the share price may now be higher than the N10 you bought it for. This is because you bought it years back and didn’t sell, so your price of N10 is fixed and as such any increase in dividend payment down the years amounts to a higher yield for you.

https://nairametrics.com/how-to-validate-and-claim-your-expired-dividend-warrants/

No extra fees or charges

Dividends unlike other forms of investing does not warrant you pay any fees when you earn them. The dividend is processed by the registrar and company at no cost to you and paid to you without any charges. The same goes for script dividends as you simply just receive your bonus shares without any charges or even tax.

No need to wait long to earn dividends

Investors in stocks need not wait too long to earn dividends. You can earn dividends in any stock so as long as your name is included in the register of members that fall before the marked down date.

You can earn dividends even if you don’t own the stock

Dividend are typically paid to people whose name appear on the register of shareholders on the marked down date. Based on this, you can still be paid dividends even if you do not own the stock. You can buy a stock a week to its marked down date, sell immediately after the marked down date and still earn dividends from the stock. Most speculators specialize in this sort of investment style and tend to time the stocks based on its potential to pay dividends.

Dividends are yours forever

When you earn dividends in a company it remains yours even if you do not claim it immediately or in several years to come. The only problem is that it may be eroded by inflation as the value reduces as the years go by. Unclaimed dividends are never owned by the companies who declare them and are now separated from their assets. Therefore, even when the company goes bust it doesn’t affect your dividend payment. Also, even if it takes you years to verify or regularize your dividend warrants, the dividend will still be paid to you regardless of the timeframe because you have earned it.

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[Read Also: How to Select Dividend Stocks in Nigeria market]

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Hedge against inflation

Good paying dividend with great yields can be a very good hedge against inflation. In an era where savings deposit rates are very low, earning dividends that pay yields higher than inflation basically guaranties a real positive return on your investment.

This article originally appeared on Nairametrics on May 9, 2014. It has been updated with new information. 

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Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

5 Comments

5 Comments

  1. clement

    October 9, 2014 at 6:34 pm

    please sir i need your help. i am in akwa ibom and have shares in courtville, honeywell flour and transcorp since last year. i did my e-dividend since last year for these companies since last yr thro my stock broker here in my state. i have not seen or receive last yrs dividend includi this yrs own. my problem now is that most of these registrars are base in lagos and as such cant visit them. how do i go about this kind of problem and get my dividends so that i can reinvest them. thank

    • Nairametrics

      October 10, 2014 at 10:09 am

      Why not get in touch with their Registrars directly. That is what I did as well.

  2. Business-Meridian

    January 21, 2015 at 8:11 pm

    Is there any way one can get a list or chart of say 5-10 years dividend history of Nigerian Companies.

    Thanks

    • Nairametrics

      January 22, 2015 at 9:05 am

      I doubt there is any such list at the moment. But work is ongoing

  3. PETER OJO

    January 30, 2018 at 2:59 am

    HELLO, HOW DO I BUY SHARE. I HAVE BEEN HAVING ISSUE IN LOCATING GOOD STOCK MANAGER COS I AVE DUPED ONCE. ANY HELP PLEASE

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Debt Securities

DMO debunks misappropriation rumour, clarifies missing N2.2 trillion in 2018 Appropriation Act

The DMO has debunked rumours of misappropriation of a N2.2 trillion debt service provision in the 2018 Appropriation Act.

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Debt Management Office resumes FGN savings bond offer on August 10, Eurobonds, Patience Oniha, DMO, External debt servicing

The Debt Management Office of Nigeria (DMO) has vehemently denied the rumour making the rounds that it was unable to account for the sum of N2.2 trillion allocated to its office in the 2018 Appropriation Act.

The agency in a recent disclosure available on its website described the claims as not only false but extremely misleading.

It is pertinent to note that the rumours became rife, after DMO honoured an invitation by the Public Accounts Committee of the House of Representatives, to explain how it spent the sum of N2.2 trillion provided in the 2018 Act. The DMO appeared before the aforementioned committee on the 26th of February, 2021.

Clarifying the issue, the DMO explained that of the N2.2 trillion provided in the 2018 Act; only the sum of N721, 251,798.00 was appropriated to its agency, while the remaining N2.1 trillion was earmarked for Debt Service. In lieu of this, the DMO emphasized that the appropriated sum of ₦2.2 trillion was not available as the DMO’s total allocation.

What they are saying

Commenting on the issue, a part of the press release reads: ‘’ The DMO wishes to emphasize that the provisions in the Annual Appropriation Acts for Debt Service, including the 2018 Appropriation Act, are dedicated for Debt Service payments only; that is, for the repayment of Principal, Interest and Other Charges for both Domestic and External Debt.

“Indeed, the funds for Debt Service are never released to the DMO for spending, rather, in line with the mandate of the Office of the Accountant-General of the Federation (OAGF), the funds are domiciled with the OAGF, who on the advice of the DMO, effects payments directly to the creditors as at when due. Such creditors include multilateral and bilateral lenders like the World Bank, African Development Bank, Exim Bank of China, investors in Nigeria’s Eurobonds, as well as, investors in securities issued in the domestic market such as FGN Bonds, SUKUK, Green Bonds and Nigerian Treasury Bills.”

It also went further to justify the need for Debt Servicing, emphasizing that: “The general public is invited to note that servicing of the public debt is absolutely necessary to ensure that Nigeria remains credit-worthy and retains or improves on its sovereign rating which ultimately, will support growth and development. It is for this reason as well as transparency purposes, that Debt Service is expressly provided as a line item in the Annual Appropriation Acts.’’

What you should know

  • The 2018 Appropriation Act authorized the Federal Government of Nigeria to withdraw a total sum of N9, 120,334,988,225 from the Consolidated Revenue Fund, in a bid to meet expenditure requirement in the 2018 fiscal year.
  • A breakdown of the 2018 Act showed that; N3,512,677,902,077 was earmarked for recurrent expenditure, N2,873,400,351,825 (capital expenditure), 2,203,835,365,699 (Debt Service and DMO’s allocation) and N530,421,368,624 (Statutory transfers).

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Debt Securities

DMO announces March 2021 FGN Savings Bond offer for subscription

The DMO, on behalf of the Federal Government of Nigeria, has offered for subscription, the March 2021 FGN Savings Bond.

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Debt management office, DMO,Nigeria's Debt to revenue ratio, DMO suspends April 2020 FGN savings bond offer

The Debt Management Office (DMO), on behalf of the Federal Government of Nigeria has offered for subscription, the March 2021 Federal Government of Nigeria Savings Bond.

This is contained in a notification published on the website of the agency on Monday. According to the notification, the savings bond offer comes in two tranches;

  • 2-year FGB Savings Bond due March 10, 2023: 5.181% per annum
  • 3-year FGN Savings Bond due March 10, 2024: 6.181% per annum

Details

  • Opening Date: March 1, 2021
  • Closing Date: March 5, 2021
  • Settlement Date: March 10, 2021
  • Coupon Payment Dates: June 10, September 10, December, and March 10
  • Units of sale: N1,000 per unit subject to a minimum subscription of N5,000 and in multiples of N1,000 thereafter, subject to a maximum subscription of N50 million.

According to the circular, the offer is backed by the full faith and credit of the Federal Government of Nigeria and charged upon the general assets of Nigeria.

Interested investors were however advised to visit their website in order to get the list of stockbroking firms appointed as distribution agents.

What you should know

  • Nairametrics had reported the offer for subscription of a similar Savings Bond in February with interest rates of 4.214% and 5.214% per annum for 2 years and 3 years tenor respectively.
  • The interest rate for the latest offer is, however higher than the offer announced in February. This could be a move to attract more investors to subscribe to the securities.
  • The FGN Savings Bond is an investment product issued through the Debt Management Office (DMO) on behalf of the Federal Government.
  • It also qualifies as securities in which trustees can invest under the Trustee Investment Act, and is listed on the Nigerian Stock Exchange.

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