A Partially Eaten Pie – The Hidden Error of Dividend Investing

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inflation rate Dividend Nigeria Economy Slides into Recession; Albeit, Q3 2020 Real GDP Contraction Rate Eases to 3.62%…
Afolabi Sotunde Illustration Naira

Dividend yields have always provided an abridged illustration of the possible returns that avails a dividend investor, as the ratio is aimed at simplifying the gains on dividend paid in a financial period, by comparing the total payment made to the stock price at the point of analysis.

To better illustrate, say “firm A”, which currently trades at N50, paid a total dividend of N5 in the 2020 financial period, analysts will arrive at the dividend yield for the period by dividing the total dividend paid by the current price and expressing it in percentage terms (5/50 * 100/1). This would give you 10%.

However, one critical piece of information that remains uncaptured by this, is the tranches to which this overall payment was made. In the above illustration, the N5 dividend payment made by “firm A” could be decoupled into a N2 interim dividend payment and a N3 final dividend payment.

In this instance, the 10% yield on the 2020 dividend payment can only be actualized if the investor collects both the interim and final dividend payments.

Accordingly, if you have crafted your dividend investing strategy around research reports that elucidates the attractiveness of some dividend plays for this year, you would be committing the hidden error of dividend investing should you fail to take advantage of the interim dividend payments that would be announced at the end of the second and third quarter of the year.

Luckily, this report would help identify such stocks that offer mid-year cash flow to investors.

Top yielding dividend payments for 2020…

2020 was a rewarding year for investors, as several notable stocks maintained or improved their cash flow to shareholders. Of the top-yielding dividend payments for 2020, there are a few names on the list that made a portion of the payment during the financial year.

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Hence, it is helpful to identify the pattern of payment in order to start crafting a market entry strategy. It is also no accident that the timing of this report coincides with a bearish market, whereby the overall market index just touched its base for the year with a year-to-date return of -4.83% at print time.

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Mid-year rewarders…

Some of the attractive yields in the table above were partly realized as early as the second quarter financial reporting, which is the period we are stepping into. Hence, we will identify some of the mid-year rewarders, their historical interim payments, and the possible expectations for this year based on past trends and our total dividend forecast for 2021.

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Major banking names dominate the list of stocks with an established record of interim dividend payments, and we expect the lenders to keep to past trends and make such dividend declarations at the release of their second-quarter financials in August 2021.

Likewise, Custodian has been consistent with a fixed Q2 interim payment over the last four years, while MTNN has displayed its mid-year generosity in the two accounting periods since its listing.

Noteworthy, are the two consumer players on the list, who have managed to sustain their third-quarter interim dividend payments. Also, it is even more imperative to observe the quotient of the total paid as interim, as stocks like Access, UBA, MTNN and Nestle pay above 30% of their total dividend as interim payments.

You cannot miss such an interim pay if you are interested in the dividend play.