Analyst downgrade bonds in preference to stocks

Investors  can make 11.5 per cent returns through dividend yields from stocks quoted on the Nigerian Stock Exchange (NSE) in 10 weeks rather than waiting for 12 months to generate 14 per cent interest in fixed income.

This is the finding of an Africa Analyst at Lagos-based Thaddeus capital investment Company, Jude Fejokwu, who said inflation makes fixed income investment unattractive.

At a time of inflation, he added, the longer money is invested, the riskier such investments assume, especially in the fixed income space.

“As of May 8, 2015, retail investors could make 11.5 per cent in 10 weeks purely through dividend yield. Why put all your funds to generate 14 per cent over a holding period five times longer instead of 11.5 period in a fifth of the holding period,” he wondered.

The average bond yield across varied tenors in Nigeria hovers around 14 per cent per 12-month period, but such stocks like NPF Microfinance Bank pays 11.5 per cent (before 10 per cent withholding tax) in two months (last week of July).

“If you spread out the run rate, this is equivalent to 69 per cent over 12 months. making more money from existing money is risky but not always hard. The few times it is not, please do not miss out,” Fejokwu advised investors in an email.

According to him, though retail investors are still smarting from losses incurred seven years ago in the stock market and uncollected dividends in two nationalised banks, Bank PHB and Afribank, they should not waste the investment opportunities.

“You lost hard money seven years ago. Why not make easy money seven years later?”

Fejokwu urged shareholders to do a personal assessment of returns from their banks and decide whether to take up rights issue or not.

“Pick the bank in which you are a shareholder and find out the last time they raised funds via equity. Determine how much dividend you have received since the last time they raised funds till when the bank came again for fresh funds.

“Any bank whose divided per share summation since the last time they took money from you cannot equate to at least 80 per cent of the price per share being offered to you to buy more shares today (three years or less), and in excess of 100 per cent beyond three years should be ignored.

“Let the shareholders with a major stake pick up the slack with their big pockets and leave you out of it. My quick mental review tells me that probably only three banks will pass this test. The banks that rarely raise equity through rights issues or public offerings.”