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Corporate Nigeria’s N865.45bn Dividend Payout Restores Investors’ Faith in Equities

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Generous payouts have continued to restore investors’ confidence in Nigeria’s economy even amid the Covid19-crisis and constrained liquidity that has continued to drag the equity market.

If investors were hunters, they would always be catching big games in the thickest forest because they have an eagle eye to identify fundamentally strong high dividend paying stocks.

A retiree who lives in the village expects his check either quarterly, half-yearly, or annually as he perceives consistent payout policy as sign of good financial health.

Corporate-finance theory says that dividends are largely irrelevant to a company’s underlying value and its shareholders’ wealth—just as withdrawing cash from an ATM machine doesn’t make you richer.

Dividends are given to shareholders of a company from distributable profit for taking the risk of putting the funds in the entity.

The largest and the most liquid companies on the Nigerian Stock Exchange collectively paid N865.45 billion in dividend to their shareholders, according to data gathered by MoneyCentral.

Notably, the average dividend yield of NGX 30 firms stands at 5.96 percent, as firms are paying out more relative to share prices.

Analysts had fretted that a lot of bellwethers will cut back on payments and conserve cash to fend off the impact of the coronavirus pandemic that undermined crude oil price and tipped economies across the globe into recession.

Despite the headwinds, over 80 percent of big companies remained profitable in 2020 as the NGX 30 firms posted combined net income of N1.51 trillion, albeit a contraction from previous year.

The good tidings for market participants-who will be getting bumper dividends- are that 2021 will be benign because corporate profits have exited a recession just as the economy recorded two quarters of consecutive growth.

In the first quarter of 2021, corporate profit surged by 34.94 percent to N535.87 billion, thanks to the relaxation of social distancing rules that underpinned reopening of businesses, successful roll-out of vaccines, and rebound in the price of crude oil.

Aligning with expectation, the Nigerian economy expanded by 0.51 percent in the first quarter of 2021, according to recent data by the National Bureau of Statistics (NBS).

Dangote Cement, the largest producer of the building material and most capitalized firm paid N272.92 billion in 2020, and that translated to a payout ratio of 99 percent as it has a yield of 7.56 percent.

The dividend payout ratio is the ratio of the total amount of dividends paid out to shareholders relative to the net income of the company.

Zenith Bank distributed N94.18 billion in dividend while it has a payout ratio of 40.85 percent. The largest lender by profit has the most attractive yield at 13.13 percent that means an investor will be getting more income.

Guaranty Trust Bank, the largest lender by market capitalization, paid its owners N79.46 billion and a dividend yield of 10.56 percent.

BUA Cement paid N69.75 billion to its shareholders in 202o, with a dividend yield of 2.56 percent.

MTN Nigeria distributed N120.06 billion to its owners from distributable profit, and a yield of 5.78 percent.

Some consumer goods firms are dividend aristocrats with ridiculously high payouts they use to lure investors.

For instance, Nigerian Breweries paid N14.07 to owners of the business, and that translated to a payout ratio of 187.71 percent as it had to take money from the retained earnings account to execute the payments.

Nestle Nigeria paid its shareholders a dividend of N28.13 billion, which translated to payout of 72.34 percent.

There has been rotation from equity into bonds due to the central bank’s dovish stance and the need to bolster Naira assets.

The year to date (YTD) worsened -4.60 percent, and a price to earnings ratio of 13 times suggests shares are becoming overvalued, Nigerian Exchange Limited (NGX).

Activity level declines on weak sentiments from retail investors.

According to the recently released data from the Nigerian Exchange Limited (NGX) on domestic and foreign investor participation for April 2021, the total value of transactions executed at the local bourse declined by 30.0% m/m to N159.9bn ($389.8m) in April from N228.5 billion. ($560.6m) in March.

Breakdown of the data revealed that the dip in total transaction value was largely on the back of a significant decrease in transactions executed by domestic retail investors, down 66.4% m/m to N36.5bn (US$89.0m).

The recent move by the CBN to adopt the NAFEX window rate as the new official exchange rate tempers the currency risk, which had hitherto hampered the foreign inflow of capital, according to analysts at CSL Stock Brokers Limited.

“Following the recent strain in FX inflows, the need to provide stability and assurance in the Nigerian FX space has become pertinent. Foreign portfolio investors have had difficulty repatriating their funds in the last sixteen (16) months, making FX clarity top among factors that would drive renewed interest from FPIs,” said the analysts.

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