Market establishing new trend, investors need not panic

  • Stocks with good dividend yield to be considered against capital appreciation

The equity market last week showed a sign of recovery on the strength of impressive FY’20 results and dividend pay-out by a few quoted firms as it rallied for two days. It however readmitted the Bears as rates in the money market improved further. There was a primary auction of Treasury Bills last week Thursday and the rate went up by 1.5 percentage points to 5.5% from 4%. This accounts for the capital flight from the equity market to the money market. Being a risk free investment, with the assurance of getting 100% of your capital in addition to the yield, investors would prefer to take advantage of the T- Bills as against equity that is more volatile.

Commenting on the current market state, the Managing Director of APT Securities and Funds Limited, Mallam Garba Kurfi allayed the fears of investors that they need not panic as the market is trying to establish a new trend.

According to Mallam Kurfi: “The market is trying to introduce a new trend. If you look at 2019, 2020 and now 2021, January always come with gain and February always come to erode the entire gain. It happened in 2019, it happened in 2020 and now in 2021, all experiencing the same trend. So it’s another trend that the market is establishing and we have no choice than to get along. If a trend repeats itself three times, whether you are aware of it or not; that is a trend and you just have to live with it”.

“If you remember in 2019, the market gained substantially; by February, it was completely eroded. Last year, the same happened. As a matter of fact, in 2019 and 2020 what the market gained was more than what it gained in 2021; but were completely wiped off in February. So what happened in this February is not a surprise to us. It’s a trend that the market tried to establish”.

 “In 2020, March was even worse than February because of Covid-19, but that was not the same with 2019 and I expect the same will repeat itself in 2021. That we will see recovery in March because more results are likely coming; and so far the result we have seen have not much disappointed us especially in terms of dividend. And if this trend persists, we will see more recovery in March and that trend may likely continue up till April. But by may June, we will see that after the mark down, prices of stocks may go down a bit down”.

Due to the fact that the economy has recovered out of recession, it gives us the hope that the market is likely going to continue that way. And therefore we are anticipating more recoveries in the equity market. Even though the money market is recovering fast; when you compare it with inflation, you will see that the money market is still not giving the relieve. Because today, we are talking of inflation of over 16%; and the money market yield is about 5 to 7%. So the equity market is better off, if not for anything but for dividend yield.

For instance UCAP and Zenith have dividend yield of more than 10%. And you will earn this in 2 months; that is an average return of 5%. So with these, we still have to remain in the capital market, if not for anything but for the dividend yield. The economy is getting out of recession and the capital market is expected to foresee the future and recover faster than what the economy is recovering. So we still expect a better return in the equity market”.

Stocks to Watch

“We should look at those stocks that are likely to pay good dividend; that is stocks that will give dividend yield of 7% and above.

  • Dangote Cement: One of the stocks that we are expecting a very high dividend is Dangote Cement. If you look at the price of Cement in the country is going up. There is no way it is not beneficial to the share price of the stock. Now that they have reduced their number of issued share capital. So whatever dividend they have is for the few and therefore they are expected to pay much higher than the N16 dividend they declared last year. Don’t forget that this is the company that did not pay interim dividend.
  • Bank Stocks: Even though Guaranty Trust Bank paid interim dividend, we are expecting them to follow the suit of Zenith Bank in terms of dividend pay-out. We are hopeful that stocks like UBA, Access Bank and First Bank of Nigeria Holdings will do better than the previous year in terms of dividend pay-out. Banking sector is one of the sector that we should pay attention more.
  • In the agricultural sector, we are expecting Okomu and Presco to do well.
  • Nestle paid more than what they earned; and this have to do with the policy of 2020 which allows you to dip into your reserve and pay if you are cash buoyant. So we expect many other multinationals may likely take advantage of that policy and take from their share reserve to pay more dividend than what the previously paid as we witnessed in Nestle.
  • Oando: We are hoping that with the outcome of the court judgement as regards their case with SEC, Oando will come out and declare their AGM; and they should know that this is the time to reward the shareholders for being patient. The price of crude oil is going up. They are entering the contract of gas pipe line from Ajaokuta to Kaduna, and they are receiving their money in dollars. Therefore, they know that the shareholders have been loyal to them and patient for them and this is the time to reward.
  • Chams Plc paid dividend of 3 kobo. It is currently trading at 20 kobo. If a stock pays you 3 kobo and trades at 20 kobo, the dividend yield is about 15%. If they can sustain that one, it will raise hope for the stock.
  • Insurance Firms: We still have hope in the Insurance companies because of their bonuses. Quite a number of them are declaring bonuses even though there is share reconstruction, but if you do the needful you will find out that you are better off. AXA Mansard gave bonus of 17 for every 7. It was marked down at 64 kobo. Today it is trading at about 104 kobo. The price appreciation is more than 50%. Insurance companies is one of the sectors that we are hopeful, that even if they don’t pay dividend, they are likely to give bonus; though you cannot rule out reconstruction. But if you do the needful, you will be better off.
  • We have some hope in PZ. They are in profit and we are expecting them to reward the shareholders.
  • UACN in 2019 declared loss, yet paid 50 kobo dividend. But now that they have earn more than N1, we are expecting their dividend to improve than that of last year.

“For many other stocks, we are very hopeful in terms of dividend.  If they sustain the dividend, most of the stocks are likely to sustain their prices and move forward”.

“There is no cause for panic, the economy is recovering. The market recovered faster than even the economy. When it is confirmed by statistics that we are out of recession, be rest assured that the market is likely going to end well”.

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