Investing in dividend-paying stocks is a proven way to build wealth and generate steady income. In Nigeria, while few companies have consistently increased their dividends for 25 years, several firms are known for their strong and reliable payouts. From banking giants to telecom leaders and consumer goods companies, these stocks offer investors a chance to earn passive income while benefiting from capital appreciation.
In this article, we’ll discuss the top 5 dividend-paying stocks in Nigeria, why reinvesting dividends can enhance your returns, and key risks to consider when investing in the Nigerian stock market.
Top 5 Dividend-paying Stocks in Nigeria
1. Zenith Bank Plc
As one of Nigeria’s foremost financial institutions, Zenith Bank has a strong track record of profitability and regular dividend distributions. For the fiscal year 2023, the bank declared a total dividend of ₦4 per share, resulting in a dividend yield of 12.27% based on a share price of ₦33 as of April 26, 2024.
2. United Bank for Africa (UBA)
UBA is a prominent pan-African financial institution known for its consistent dividend payments. In 2023, the bank offered a total dividend of ₦2.8 per share, achieving a dividend yield of 11.89% with a share price of ₦24 as of May 13, 2024.
3. Guaranty Trust Holding Company (GTCO)
Formerly known as Guaranty Trust Bank, GTCO has maintained a reputation for steady dividend payouts. For the 2023 financial year, shareholders received a total dividend of ₦3.2 per share, equating to a dividend yield of 9.79% with a share price of ₦33 as of April 29, 2024.
4. Access Holdings Plc
As the parent company of Access Bank, Access Holdings has demonstrated a commitment to rewarding its shareholders. In 2023, the company declared a total dividend of ₦2.1 per share, resulting in a dividend yield of 9.33% based on a share price of ₦23 as of April 12, 2024.
5. Fidelity Bank Plc
Fidelity Bank has shown a strong performance with regular dividend payments. For the 2023 fiscal year, the bank distributed a total dividend of ₦0.85 per share, achieving a dividend yield of 9.24% with a share price of ₦9 as of April 29, 2024.
Advantages of Reinvesting Dividends
Reinvesting dividends involves using the cash dividends received to purchase additional shares of the same company. This strategy offers several benefits:
1. Compounding growth: By reinvesting dividends, investors can harness the power of compound interest, where the acquired shares generate their own dividends, leading to exponential growth over time.
2. Cost averaging: Regularly reinvesting dividends allows investors to buy shares at different price points, potentially reducing the average cost per share over time.
3. Enhanced returns: Over the long term, reinvesting dividends can significantly boost total returns compared to taking dividends as cash, as the additional shares contribute to greater dividend income and capital appreciation.
Investing in Nigerian Stocks
Participating in the Nigerian stock market offers investors exposure to one of Africa’s largest economies. For those seeking regular income, focusing on companies with a history of consistent and attractive dividend payments is a prudent approach. While it may be challenging to find firms with a 25-year track record of increasing dividends, many Nigerian companies provide substantial dividend yields and show potential for growth.
Understanding the Risks
Investing in emerging markets like Nigeria comes with inherent risks, including economic volatility, inflation, and political instability. To mitigate these risks:
1. Conduct thorough research: Investigate each company’s financial health, market position, and growth prospects before investing.
2. Diversify your portfolio: Spread investments across various sectors and asset classes to reduce exposure to any single market segment.
By staying informed and adopting a disciplined investment strategy, investors can navigate the complexities of the Nigerian stock market and work towards achieving favorable returns.
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