In periods of low interest rate, like we have it now, dividend-paying mutual funds have been found to provide succour to yield hunting investors.
As yield from Treasury bills and money market accounts and money market mutual funds flatten out or hit near zero, investors should look towards high dividend-paying mutual funds.
Most mutual funds pay dividends at least once a year, although the frequency of dividend payments depends on each fund’s policies and objectives.
Dividend Yield
Assessment and analysis of dividend is usually based on dividend yields.
Dividend yield is the ratio of the current annual dividend as a percentage of the current price of a share of stock or mutual fund. For example, if a fund’s current price is N45 and it pays N2.50 in dividend, the dividend yield becomes 2.5 divided by 45 or 5.5%. With the knowledge of dividend yield, an investor can get an idea of what to expect from your fund in terms of dividends.
For example, if you had invested N500,000 in the fund above that has 5.5% dividend yield, you will expect to receive about N27,780 each year as dividend.
According to available information from the Nigeria Stock Exchange, some mutual funds in Nigeria have had good dividend-paying history and those could provide investors with the cushion to weather the storm while the low interest regime improves.
Lotus Halal Fixed Income Fund has declared two dividend payments in 2021, a dividend of N33 per share was declared on January 21, with payment date of January 22, 2021, while another one was paid on April 15th 2021 at a rate of N20 per share. That comes to N53 per share and at a current price of N1,152.88, that translates to a dividend yield of 5%.
SFS Real Estate Investment Fund (REIT) also recently paid an N8.10 dividend on 16th April 2021 resulting in a dividend yield of 12.06% on a price of N67.9 per share. In 2020, SFS Real Estate Investment Fund paid a dividend of N22 per share.
Union Homes Real Estate Investment Trust (REIT) paid a N1.86 per share dividend on May 4, 2021, resulting in a dividend yield of 5.08% while SIAML ETF 40 paid a per share dividend of N4.2 on August 11th 2021, that is a dividend yield of 4.47%.
Lack of Data
One of the problems with mutual funds in Nigeria is the dearth of data and investment decisions are data-driven decisions. That lack of data impacts the growth and popularity of mutual funds. One area that lack of data really impacts is the area of mutual fund dividends. The lack of information on which mutual funds pay what dividend at what rate is creating a vacuum and not helping investors decide on what dividends to invest in, especially those that want to do so because of the dividends, the so-called dividend investors.
Lack of Clarity
There is also a lack of clarity as to who reports or should report mutual fund dividends. While the Stock Exchange reports or includes mutual fund dividends as part of its corporate action reporting, there is every indication that more mutual funds pay dividends than what is being reported by the Exchange. One would have expected that since the Security and Exchange Commission reports mutual fund assets, the SEC should also report the dividends.