In 2011, Warren Buffett invested $5 billion in the Bank of America. On October 9, Bank of America CEO, Brian Moynihan was discussing this investment on the David Rubenstein Show. In 2011, Bank of America’s financial health deteriorated after the global financial crisis.
However, Buffett bought preferred stock in the bank. In 2017, that $5 billion investment expanded to $12 billion, gaining a whopping $7 billion.
A similar situation that happened in America about a decade ago is taking it to shape in the Nigerian Stock Exchange as the dividend yield on the Nigerian equities market has in recent times continued to increase as a result of the persistent free-fall in equity prices owing to a bouquet of factors.
The global Coronavirus pandemic has further strengthened the panic selloffs in the local and foreign financial markets.
The impact of the virus seems heavy, killing more stock markets and economy than people across the globe, sending panic waves around the world, more devastating than the financial meltdown of 2008.
Nigerian stocks hit new lows as the Nigerian ASI Index hit a new 11-year low on a huge traded volume that suggests that investors are dumping their shares, in their desperate bid to cut their losses.
So far, the Nigerian market has lost all of 13% in just four trading sessions of the week, just as over N1.82 trillion has been shaved off the market capitalization within the same period.
Meanwhile, with the resultant fall in the price of crude oil at the international market, the Nigerian economy is already challenging Nigeria on fiscal balancing and its recent devaluation of the naira
The Central Bank of Nigeria’s efforts to spur economic growth and development through the low-interest rate regime, a situation that is first in the history of Nigeria, even as the lack of investor protection and corporate governance are hurting the market.
READ MORE: Another crushing recession ‘is coming’
The prolonged market downturn has, however, boosted yield, especially of blue-chip stocks and other dividend-paying equities across the different sectors of the market. Banking and other financial services stocks are powerhouses of any economy, just as they are intermediaries and agents of development.
Dividend investing has become necessary in the post-general election Nigerian stock market.
That has been characterized by a free-fall in equity prices, which has eroded investors’ capital and confidence in the entire economy due to weak macro-economic indices and a lack of development and growth-stimulating policies from the government to offer the much-needed direction.
The Dividend Yield at any time measures how much cash flow you as an investor are getting for every Naira invested in a company’s equity. It also tells what percentage of net profit a company pays out in the form of dividends. This is one of the main factors you need to consider when investing in dividend-paying stocks.
It’s expected that there will be a slowdown on the losing momentum as low prices of stocks and high dividend yields attract buying interest that cannot be resisted by smart money, as more audited corporate earnings hit the market, going forward.
This is despite the likely continuation of the mixed intraday movement in the midst of selloffs, with investors buying increasing positions in undervalued stocks ahead of dividend declaration.
This is also against the backdrop of the fact that the capital wave in the financial market may persist in the midst of relatively low-interest rates in the money market, high inflation and unstable economic outlook for 2020.
Nigeria top tier one banks like ZENITH, GUARANTY, UBA, FBNH, ACCESS look attractive based on their recent Price book ratio and dividend yield.
However, it’s very important to seek a certified financial advisor or licensed stockbroker, when picking stocks for investments, as unprofessional advice can erode your capital or savings.
Financial Institutions still the fastest growing sector in Nigeria
Banks and other financial institutions posted a 24% GDP Growth Rate for the First Quarter of 2020.
Financial Institutions in Nigeria reported a GDP Growth rate of 24% for the first quarter of 2020 compared to 22.3% in the last quarter of 2019 and a contraction of 9.21% in the corresponding quarter of 2019. This is according to data from the National Bureau of Statistics.
Financial Institutions sub-sector include commercial banks, merchant banks, micro-finance banks, and FinTechs, and other non-banking financial institutions.
Based on the data, Financial Institutions retain their position as the fastest-growing sub-sector in the Nigerian Economy. Growth in the sector remains miles ahead of every other sector in the economy and higher than the overall GDP growth rate of 1.87% for the quarter. The closest to Financial Institutions Telecommunication and Information Sub-sector at 9.71%.
Bank Q2 Results
Apart from data from Commercial Banks, other financial institutions not quoted on the Nigerian Stocks Exchange do not publish their reports in public. However, available data from some of the largest banks in Nigeria reveal growth in gross earnings was recorded across board.
About 8 of the banks that published their first-quarter results posted about N836.2 billion in gross earnings compared to N755 billion representing a 10.8% growth. Most of the growth was from the merger between Diamond Bank and Access Bank.
Effects of Covid-19
Several reports published in Nairametrics suggest banks face headwinds from the Covid-19 Pandemic. An Augusto & Co report assessed the impact of the coronavirus pandemic on the asset quality of the Nigerian banks. According to details in the report, banks are significantly exposed to several sectors which include the oil and gas sector, manufacturing, real estate, public sector, construction, and general commerce.
It mentions that about 47% of the banking industry’s gross loans are in foreign currency. The report suggests that the coronavirus pandemic will weaken the asset quality of Nigerian banks in view of the impact on State Governments’ finances, purchasing power of households and the performance of businesses. Although the degree of impact will vary across different sectors, the key sectors that will bear the brunt are oil and gas (upstream), real estate, construction, transportation (aviation), and manufacturing (non-essentials).
CEO of one of Nigeria’s top banks, Zenith Bank Plc, Ebenezer Onyeagwu, also commented on the effect of the Coronavirus on the sector. Speaking to CNBC Africa, Onyeagwu stated that one of the most immediate impacts of the Pandemic is the fact that the oil price crash will have negative implications for banks’ revenue targets.
“In terms of banking, the drop in the price of crude is affecting directly the exposure that banks have created in the oil and gas sector. Revenues are challenged now, no doubt. And you have a situation where revenues are challenged, the obvious next step will be for you to restructure,” Onyeagwu stated.
The data is symptomatic of a twisted economy altered by several heterodox policies that have kept interest rates high for banks and lending short for SME’s and Real Sectors of the economy. With several sectors in the country posting a negative GDP growth rate in the first quarter of 2020, the outlook for the second quarter portends an even worse outcome for the rest of the economy. While banks have weathered tougher challenges in the past a weaker than expected economy will likely stunt its growth in the coming quarter.
More recent CBN Policies of stiffer CRR and 65% loan to deposit ratios imposed on banks to lend to the private sector. The CBN was meant to meet on Friday for its monetary policy meeting for May but postponed till Thursday. Some analysts point to a softer monetary policy stand that could see it relax its CRR and LDR requirements. This is assuming the latest GDP numbers do not reinforce its resolve to get backs to support the economy following the impressive GDP growth rate.
Skills Africa needs for sustainable development
Over a billion people with 5 official working languages – Arabic, English, French, Portuguese and Swahili , will again celebrate Africa Day this year.
From Addis Ababa to Durban, Lagos to Cairo, from the Sahara Dessert to the Nile River, over a billion people with 5 official working languages – Arabic, English, French, Portuguese and Swahili – will again celebrate Africa Day this year.
A day to remember, reminisce and celebrate successes recorded against the struggles for independence, freedom from apartheid and colonization. Although, with the new normal brought about by Coronavirus, the 2020 celebrations would be quite unlike previous years.
The Africa Union (Formerly OAU) has recorded good milestones in terms of political independence and self-governance. So now is a good time for Africa to reflect on our independence.
On reading the objectives of the Africa Union (AU), words like independence, territorial integrity, human rights, security, cooperation are splattered across the pages. Significantly, none of the AU objectives seeks economic autonomy for Africa or her member states. This is a fundamental flaw which speaks directly to Africa’s issue of having a large population without the requisite skills for growth.
Our education is largely dependent on the western curriculum and narrative. There is hardly any major infrastructure, industrial or development project in Africa with 100% African content in manpower, materials or capital.
It is now well established and more evident that political independence without economic independence is like a car without an engine. Economic empowerment is the nucleus of national development. No fewer than 14 West African countries currently use CFA Franc, with some having used the currency for at least 75 years. This goes beyond nameplate as the Bank of France holds half of those countries’ currency reserves. This is effectively cutting their growth capacity by 50%.
8 of those 14 countries will relinquish the CFA franc for the new ECOWAS currency, ECO (to be launched in July 2020). However, there is no indication that the affected African leaders would ask France for compensation for the years of economic sabotage to their countries. The introduction of the ECO was to bring a ray of hope, but we hope the real difference would not just be in the colour of the currency. This is because the ECO will not be autonomous but would be pegged against the Euro.
France is not alone in the economic sabotage of Africa, they are in the good company of the United Kingdom, the US and Belgium, to mention a few. However, are these foreign countries to blame? Africa got her independence, but African leaders refuse to be independent and the dependent mentality is also enshrined in the AU objectives.
One of the AU objectives states “to work with relevant international partners in the eradication of preventable diseases and the promotion of good health on the continent.” The statement looks good superficially, but it is enlaced with aid orientation, the lack of drive for self-reliance, and a beggarly mindset.
Let us educate Africa to pursue the development of its people, with core skills that are necessary to deliver the quality of the progress and growth that Africans desire. African construction companies should make African infrastructure and 100% African content should be the target in automobile engineering, healthcare, information technology,
Necessity is said to be the mother of invention. The need for Africans to lead Africa out of poverty, tyranny and underdevelopment is a matter of great importance, far beyond just necessity. Every African must desire to get skilled, and not just education, as we currently have it. We must have the competence to develop our agriculture system, mine Africa’s natural resources and add value by processing them locally.
Africa Day would only be truly worthy of celebration when African people and countries are skilled enough to accomplish our dreams of self-reliance and economic independence.
Article written by Olatunde Akintola. Olatunde is a Fellow of the Institute of Chartered Accountant of Nigeria and alumni of Manchester Business School. He writes from Lagos.
Tiktok’s In-App revenue surges amid lockdown
ByteDance Ltd’s brainchild, TikTok, together with Douyin ranking tops globally on mobile apps with the highest revenue generated for the month of April.
The meme-making business has proven to be worth all the fuss, with TikTok, as well as its Chinese twin app, Douyin, ranking tops globally on mobile apps with the highest revenue generated for the month of April.
Sensor Tower, notes that just in the first quarter of this year, ByteDance Ltd’s brainchild, TikTok, together with Douyin which caters to the Chinese market, generated 315 million downloads globally, from the 187 million it had just a year earlier.
The ranking, which was based on their in-app purchases, reveal a tenfold increase, as the companies garnered a whopping $78 million in revenue. The Chinese market is said to have contributed 86.6% of Douyin’s revenue, followed by the U.S market which contributed 8.2%.
This places them ahead of older names like Netflix & YouTube. As opposed to using subscriptions like these established brands, TikTok and Douyin allow users to purchase virtual currency to spend on their favorite content creators.
(READ MORE: Does YouTube stand a chance against TikTok?)
While ByteDance is exploring the world of online commerce, it continues to rely on advertising as its primary income source. However, Emarketer projects that more than 75 million US social network users will make at least one purchase from a social channel in the year 2020.