- Investors to target stocks with good dividend yield
The market last week went southward for five consecutive days occasioned by profit taking and improved rate in the fixed income space as Federal Government issued savings Bonds at a mouth-watering interest rates of 4.2% and 5.2% respectively. Like we all know, smart investors are always looking for opportunities where their bread is better buttered, hence there is capital flight from the equity market to the bond market.
Entering into the year 2021, the market has been upbeat with stocks rallying to attain new 52 weeks high based on positive sentiments arising from several factors among which include: retained key lending rates by the Monetary Policy Committee of CBN, Q4’20 Earnings expectation and forward looking oil price.
Market experts at the beginning of the year had projected a positive trajectory for the equity market in the first quarter of 2021 ceteris paribus. However, the newly issued FG bond with improved rates came as a shock to the market, triggering the downward trend in the market.
Reviewing the market with Aruna Kebira, Chief Dealer of Global View Capital Limited, the capital market guru pointed out that the current market decline has provided another BUY opportunity for discerning investors.
According to Mr Kebira: “The issuance of FG savings bond at over 5% drew people’s attention from the equity market to the bond market. Moreover, most of the prices have established their new 52 weeks high. A number of people were thinking that the market has topped out at that point, so they find it wise to take their profit and move their resources from the equity market to the bond market. You know when one person starts it successfully, other people will join and before you know it, the market will go down.
“Going forward, that decline only provided BUY opportunity for discerning investors. Zenith Bank came as low as N25.65 last week, UBA came to N8.25 at a particular point in time before it recovered. This include Access Bank that came down to N8.3. Flour Mills is trading below N32. Wapco is trading below N27. At that this is creating a BUY opportunity”.
“The rate increase in the bond market is a shock to the market. The Federal Government is not consistent with its rates, so we don’t know how long this may last. We might see a reversed market by this week.
“My advice for investors is to stick to stocks that have high dividend yield because this is the dividend season. Looking for capital appreciation might not actually be there; but good divided yield, yes”.
If you look at Presco’s result, earnings increased from N3 to N7. That was about 83% growth, but the stock is already doing N75. So they may do more than N2 dividend that they did before. So we will be looking at getting dividend but not that you want sell it at N100, it can’t go there. If it can, not this quarter. So it is good dividend yield people should be looking out for, and not capital appreciation.
Stocks to watch are fundamentally sound stocks. You can see insurance stocks that went up that day, all of them are down. This Presco we are talking about now, no matter how the market is, it is still trading at N75. You can see Zenith Bank that I have always talked about, they forced it down to close at N26 on Friday. It cannot fall as low as stocks that don’t have fundamentals. Champions rose from N0.86 to N4.13. On Friday, it came down to N2.77 because there are no fundamentals. Any information can move the price of a stock to N100, once that information expires, that stock can come to zero when they have no fundamentals.
Investors should look for dividend yield stocks. For clarity, if you buy Presco at N75 because they want to pay N2 or N3, don’t be thinking that you will sell the stock at N85 or N90, it’s not going to be possible. It is the dividend that you will concentrate on. There could be an appreciation that may off set your cost that you will get your capital and your dividend intact, but not the way we are seeing it now, since people have been taking position since November last year.