The market has suffered huge losses as it continued its southward trend in the past months and weeks before finding new support level that brought the oscillating trend we saw in the recent weeks. This is an indication that the expected market recovery is underway despite that the companies and market fundamentals that are to influence equity price are still very weak for now but when positive information and improve macroeconomic indices start emanating in the weeks ahead it will support the recovery move.
Increasing unemployment rate, due to high cost funds as a result of high interest rate, high cost of governance, dwindling value of naira as a result of falling oil price, low purchasing power and weak Q3 corporate earnings have affected the market hugely. Also, the government economic blueprint has not given direction yet to guide foreign and local investors decision. The uptrend witnessed in the first trading week of August was attributed to sentiment on low prices of equities as smart money consolidate their positions in some companies. The current high dividend yield and margin of safety should guide discerning investors seeking opportunities to grow their portfolios and build wealth. They should buy quality stocks even as the market decline in the face of expected recovering. Targeting companies with consistent history of dividend payment on quarterly or yearly basis. Research has shown that companies with a policy of consistently increasing dividends have outperformed the market on many occasions. Dividend paying stocks put cash in your pocket and help you to counter inflation.
Unlike earnings, dividends cannot be manipulated or faked; dividends provide continuous feedback on company’s performance. As time passes dividend investors see their income steadily grow. You do not have to wait five to 10 years to determine if the strategy is working.
Reinvested dividends provided a significant portion of the historical equity return; performance in any given year is driven by capital appreciation, but long-term returns are largely the result of reinvested dividends. Good companies grow their investors’ dividends: you expect your employer to give you a raise periodically. Why wouldn’t you expect the same from your investment?
Spending dividends in retirement does not harm your investment. In addition, a good dividend portfolios can be given to your children and grandchildren. A dividend portfolio is relatively cheap to maintain. We strongly advise that dividend paying stocks should have a spot in everyone’s portfolio, especially in a time like this.
Another key factor to successful investment in this kind of market is to invest in companies that are leaders in their business and industry. If the company is key player in its sector then it can raise prices to keep up with inflation but not in every situation. The market leaders can easily raise capital and survive economic downturns considering the nature of their products and services that have no close substitute. These companies are money spinners with healthy cash flows. As an investor you may take a full position in some stocks right now at a better price. There are some good quality stocks around that are immune to market selloff, meaning that after profit taking or free fall of the market, some companies share prices bounce back on the strength of its profitability and earnings.