Why Buhari Must Build Conducive Business Climate

Many domestic and international investors have not realised that Nigeria's Presidential and National Assembly elections of March 28 and the peaceful transition of power from one democratic government to another on May 29 has opened up some exciting opportunities for all kinds of investors. It is no secret that things would start unfolding very soon with the expected economic reform blueprint of the new administration to build formidable capitalfor driving a stable economy capable of attracting inflow of capital.

It is expected that investors and the business community would strategise to explore this emerging opportunities, mitigate risk and expand frontiers to profit from the new dispensation and political stability.The delay by the government in providing policy direction has slowed down business activities in every facet of the economy. This has complicated the business and economic plight of many Nigerians and employers.

Buhari’s victory, more or less, assures that the economy would be fixed and transformed with a moderately pro-business and progressive government in the saddle until 2019. This does not mean all of the nation's woes are solved, far from it.

However, it does suggest that the country would become asafer haven for equity traders and income investors within the country and off shore as insecurity would be stamped out and corruption reduced to build a stable and vibrant economy.

Nigeria is one of Africa's largest emerging markets, offering high dividend yields that are juicy to investors. The market has great opportunities worth trading and investing in to grow your portfolio as fund managers or high net worth individual. This is because the country's monetary policy rate remained high at 13 per cent; but capacity utilisation at 60.3 per cent; inflation rate, 8.7 per cent: and government's debt-to-GDP, 11 per cent;  are not a bad starting point for the new government. There is however need for workable economic reforms that would drive strong development and growth to boost economic fundamentals that would make the country a safe investment destination for all.As the International Monetary Fund (IMF) projected, Nigeria is to grow at 4.8 per cent rate this year and then 5 per cent in 2016.

The Nation’s Economy

Following Buhari’s victory, keyareas that need to be addressed or fixed quickly by taking prompt action are: Security, electricity and the purchasing power of Nigerians to keep the nation's production cycle rolling, because without capacity to consumeand ensure production to keep people employed. New employment for the production cycle to be sustained by the ability to buy goods and service. When these issues are tackled with the strong fundamental of the nation as the fiscal and monetary policies work together to empower Nigerians, the nation's economy would expectedly move forward.

The decision by the President and his team to address issues of unpaid salaries of state government workersis a welcome step. Nigerians are also waiting to see the administration unveil it's list of ministers and the economic management team that would generate the formidable capital for building a new Nigeria to justify the much desired change.

Since Nigeria is one of the fastest growing economies in the world and one of the major emerging markets in Africa that offers dividend stocks with yields that are attractive to foreign and domestic investors, it is worth allocating a portion of your portfolio to these dividend income stocks.

Despite the fact that the technical picture is unclear, our market remains strong in the mediumto long-term with huge upside potentials as the current Price/Earnings Ratio is below 15x.Dividend payment in equity investment is as old as the stock market itself which is a function of a company's profitability at any given time.  The key to any successful portfolio is stable growth and additional income from interim or full year dividends that gives investors the flexibility to earn some cash for reinvestment or to meet needs. 

At this juncture, investors are advised not to overlook the opportunities for high dividend yields, regardless of the current downturn in the market attributable to delay in giveneconomic reform policy direction by the government.

Dividend Opportunities

SECRITIES	FULL YEAR EPS	TRAILING EPS	FULL YEAR PE RATIO	TRAILING PE RATIO	DIVIDEND	DIVIDEND YIELD
NPF MICRO FINANCE	0.17	0.09	5.84	11.71	0.15	15.00
UNITED CAPITAL	0.52	0.12	2.69	7.92	0.20	14.29
FBN	2.54	0.69	3.14	11.52	0.10 & 1;10	13.16
AFRICA PRUDENTIAL	0.61	0.19	2.26	7.37	0.35	12.50
ACCESS BANK	1.88	0.60	3.16	9.94	0.60	10.08
ZENITH BANK	3.17	0.92	6.16	21.31	1.75	8.97
FCMB	1.12	0.27	2.68	11.26	0.25	8.33
GTBANK	3.35	0.90	8.05	29.91	1.75	6.48
NATIONAL SALT	0.70	0.18	11.21	44.23	0.50	6.33
DANGOTE SUGAR	0.97	0.20	7.12	34.88	0.40	5.79
TOTAL OIL	13.03	0.66	12.66	250.97	11.00	5.45
MOBIL OIL	17.73	4.13	8.96	38.47	6.60	4.52
UACN	5.58	0.87	7.52	48.15	1.75	4.16
STANBIC IBTC	3.21	1.02	8.44	24.99	1.10	3.93
CUSTODIAN ALLIED	0.70	0.25	5.83	16.00	0.15	3.70
LAFARGE AFRICA	11.55	2.85	8.66	35.05	3.25	3.60
DANGOTE CEMENT	9.36	4.03	18.61	43.25	6.00	3.45
NESTLE NIGERIA	28.05	3.73	30.31	228.13	27.5	3.07
NIGERIA BREWERIES	5.62	1.34	26.68	112.29	3.50	2.33
7UP PLC	10.04	7.09	17.64	24.97	2.50	1.41

NPF MICROFINANCE BANK

 This is a leading microfinance bank in its sub sector,with focus on delivering satisfactory service to the nation's police community and other customers. The bank's conservative nature and prudent management has reflected on the numbers it released in recent times. For instance, its first quarter trailing Earnings Per Share (EPS) stood at nine kobo, with trailing PE ratio of 11.71x. Its projected full-year earnings per share is 23 kobo. Since the company got listed on the exchange five years ago, it has paid dividend consistently with increasing payout to 15 kobo for 2014. Its dividend yield is above the current MPR of 31 per cent. The historic PE ratio of 5.84x is attractive for income investors.

UNITED CAPITAL PLC

 This company is into investment banking, financial advisory services, asset management and equity trading on the floor of the Nigeria Stock Exchange to diversify its revenue base.This has supported its earnings power, despite the additional shares by way of rights issue.  The financial service provider's payout for 2014 was down to 20 kobo from the 25 kobo paid in 2013.  The company's historic price to earnings ratio of 2.69x is attractive while its trailing PE ratio is 7.92x, indicating shorter waiting period in this stock as earnings continue to increase. With Its trailing EPS of 18 kobo and dividend yield of 14.70 per cent, income investors should look the way of this equity.

FBN HOLDINGS

FBN Holdings is a strong one-shop financial institution that is into commercial and investment banking, insurance, registrar service and mortgage. This bank ranks first in asset base in its industry. The monetisation of its 1:10 scrip and dividend payout of 10 kobo is equivalent to 105 kobo, making the bank's dividend yield to stand at 13.16 per cent. The stock currently tradesat a historic 3.14x earnings and trailing PE ratio of 11.52x. This makes the stock attractive for income investors and people playing it for long term as its first quarter trailing EPS is 69 kobo and the full-year is projected to be in the region of 240 kobo.

AFRICA PRUDENTIAL

This company is the only quoted and leading share registration service provider in Nigeria. Ithad rewarded its shareholders with dividend of 35 kobo in the last two financial years. On the strength of its trailing EPS of 19 kobo and projected full year of 70 kobo, dividend possibility of 35 to 40 kobo is high. Its earnings are relatively strong as it trades at historic 2.26 times earnings and a yield of 12.50 per cent. For capital appreciation and growth stock, look the way of this equity. This is thecompany with strong free cash flow to play investment. The company's trailing PE of 7.37x is not bad at all.

FCMB HOLDINGS

This is a holding company that  is into  commercial as well as investment banking and securities trading,  with strong corporate, retail and investment banking products that are driving its impressive numbers been posted.

Its recent first quarter earnings to the market were fair as it posted 27 kobo EPS. For an equity selling below N3.00, this is good. The equity is still attractive enough to watch for investment, whether short, medium or long term. Technically, the stock is at its oversold region and the signal for retracement is high. The historic price to earnings ratio of 2.68x and dividend yield of 8.33 per cent is good and attractive.

ZENITH BANK

This bank is unique in its aggressive marketing, relationship building and strong Investment and Communication Telecommunications (ICT), which are factors that have driven so far. The bank now ranks sixth biggeston the continent, with robust capital base and net asset. It ranks first in terms of profitability and second in net asset.

The bank has consistently grown its earnings on quarterly and yearly bases to support its increasing dividend payout over the years. This stock is trading at a historic 6.16x earnings with a dividend yield of 8.97 per cent. This is good and attractive for income investors as its trailing PE Ratio and EPS are 21.31x and 92 kobo respectively. 

GTBANK

This bank provides financial services to Nigeria, just as it has branches outside the shore of the country. It currently has an asset base of over N2 trillion and shareholders funds of over N200 billion. Its corporate banking preference and strong service culture that have enabled it record consistent Year-on-Year growth in customer base, which have impacted on its bottom line to support its dividend payout policy. It has also consistently paid dividends over the past five years. The stock trades at its historic 8.05 times earnings and a yield of 6.48 per cent.

NATIONAL SALT

This company is into salt production, marketing and distribution, alongside other food ingredients that support cooking. The entrance of the Dangote group into the company has revitalised and repackaged it for sustainable profit. This has supported its increasing dividend payout in recent years. The nature of its products has also impacted its bottom line.The company has raised distributions for three years in a row. The stock trades at historic 11.21 times earnings and a yield of 6.33 per cent.

NESTLE

It has continually invested and expanded its capacity to meet demands for many years and this has continually impacted on the company’s bottom line on quarterly and yearly bases. The nature and quality of the company’s products have made marketing easy for it. The strong earnings’ power of the company has supported its increasing dividend payout for many years.  The company has remained the highest-priced stock on the exchange for years. Its stock currently trades at historic PE of 3.31 times earnings with a yield of 3.07 per cent. The stock will become more attractive if the price drops lower. In terms of profit, this company will bounced back.

DANGOTE SUGAR

This is the only sugar company listed on the exchange. It refines raw sugar into edible products which is sold,with strong prospects of growth as it continues to invest in capacity expansion to meet domestic consumption and export with the aim of boosting profitability. The company’s stock currently trades at 7.12x earnings historic and trailing PE of 34.88 with a dividend yield of 5.79 per cent. It recently paid a dividend of 40 kobo.   On the strength of its 20 kobo EPS for the first quarter and the full year EPS is projected at 82 kobo. Income investors can look the way of this stock.

LAFARGE AFRICA

This is the second largest cement production company, which is also into marketing and distribution. The company’s determination to expand its capacity to boost its metric ton output and sustainable development know-how in the sector have started impacting its performance since 2013 and is likely to continue as Nigeria bridges its infrastructure gap. The company continues to demonstrate its efficiency in the management of controllable cost lines by maintaining fantastic margins in spite of its huge financial obligations.

We think the company’s huge investment in capacity building would yield outstanding returns for the medium and long term investor. The recent consolidation of Lafarge Wapco Nigeria and Lafarge South Africa would boost price performance of the stock in the two exchanges, as production capacity has doubled to further improve profitability. On the strength of its first quarter EPS of N2.85 and the projected full year EPS of N9.21, the stock trades at 8.66 times of historic earnings with a dividend yield of 3.60 per cent.

DANGOTE CEMENT

This is a leading cement producing company in Nigeria that isfully integrated with projects and operations in 14 other African countries. The company is the most capitalised stock on the exchange and the most priced in its sector. The company has expanded its production capacity to 20 million metric tons per annum to boost sustainable development and profitability level. It has continued to export cement and as well as meet the demand of the government and private sector that are committed to infrastructural development in the effort to bridge the existing gap. The company’s huge investment in capacity building will yield outstanding returns for the medium and long term investor. On the strength of its first quarter EPS of N4.03 and the projected full year EPS of N12.56. The stock trades at  historic earnings of 18.61 times  with a dividend yield of 3.45per cent. The company is trading at a reasonable valuation with improving profit margin. The construction industry is sure to benefit from government activities.

TOTAL NIGERIA

This company is into oil marketing and distribution, with strong financials that have supported its increasing dividend payout for five years in a row, the stock remains well positioned in the downstream oil marketing sector despite its many challenges, including the continued free fall of crude oil price in the international market. Total stock has a potential to rally on the strength of its strong earnings and payout policy but investors looking the way of this sector now should think long. The stock trades at  12.66 times earnings historic with a dividend yield of 5.45 per cent.

MOBIL

This company is also into oil marketing and distribution of petroleum products. At the same time, it is in real estate business which in recent times has started reflecting on its bottom line.  The dividend increase by the company is on the strength of its earnings in that particular financial year.  The company remains well positioned in the downstream oil marketing sector, regardless of the many challenges facing its industry, especially now that oil price is falling at the international market. This stock has a potential to rally on the strength of its strong earnings and payout. With its trailing first quarter EPS of N4.13 and full year projection of N12.43. The stock is currently trading at 8.96times historicearnings and trailing PE of 38.47x. With a dividend yield of 4.52 per cent.

UACN

This holding company with interest in some listed companies on the exchange is into agriculture, manufacturing, property, paints, chemical and distribution of consumer staple products. Yes, it has been consistent in paying dividends but the payout has relatively volatile, reflecting the earnings position of the company at any given time. Due to the diversification in investment and those of its subsidiaries, it is expected that its future dividend payout might increase as profit from all its investment start impacting on its bottom line. The stock trades at 7.52x historic earnings and a dividend yield of 4.16 per cent. On the strength of the company’s first quarter EPS of 87 kobo, the expected full year earnings per share is forecast to be in the region of 285 kobo, from which it paid a dividend of N1.75.