Importance of Dividend, Products and Company Size In Equity Investing.

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 improved macro-economic indices start emanating in the weeks ahead it would surely support the recovery move.

Increasing unemployment rate, due to high cost of funds as a result of high interest rate, high cost of governance, dwindling value of the naira as a result of falling oil price, low purchasing power and weak half year corporate earnings have affected the market hugely. Also delay on the part of the government to roll out its economic blueprint has kept many from taking action or plan, since there is no policy direction to guide their business or investment decision. The uptrend witnessed in the first trading week of August was attributed to sentiments on low prices of equities, as smart investors 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 oscillates in this recovering mood, while targeting companies with consistent history of dividend payment on quarterly or yearly basis. Research has shown that companies with a policy of consistently increasing dividend payout 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; because dividends provide continuous feedback on company’s performance. As time passes dividend investors see their income steadily grow. You do not have to wait for five to 10 years to determine if the strategy is working.

 Reinvested dividends provide 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 portfolio can be bequitted 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 look out for companies that are leaders in their business and industry. If the company is a key player in its sector, then it can raise prices to keep up with inflation. 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 sell off, meaning that after profit taking the prices bounce back on the strength of its profitability and earnings. See the Margin of Safety table to guide your investment decision.