jamace: What is the value of the paid dividend compared to the depreciation of the stock after payment of dividend? Dividend paid is ALWAYS meager compared to depreciation of stock. What is the value of stocks that have paid dividend presently compared to their prices before the announcement of dividend?

Dividend is like giving you part of your money which ultimately depreciates your capital (Share value) at the point in time.

Most smart investors don't wait for dividend. They sell off once it is time for payment of dividend in order to retain their share value and then buy again after share depreciation.

It depends on the volume of shares you have, people use their dividend to buy income generating houses, start a business or diversify into another asset class.

Rather than waiting for capital appreciation in a non-dividend paying stock, I will use my dividend to increase my holding in a dividend paying stock.

jamace:

The more units of shares you own, the more the loss after payment of dividend because the value of shares will drop drastically due to price depreciation. Why depreciate the value of my shares in order to pay me dividend? Why use my money to pay me, thereby delaying my progress?

For instance, the price of ZENITHBANK was around N25.00 before announcement of dividend. Now, check the price depreciation on ZENITH BANK compared to the dividend that will be paid to individuals. As at today, the price of ZENITHBANK is under N20.00, that is a depreciation of N5.00. Did ZENITHBANK pay N5.00 dividend? NO! So, it is a loss on the part of the investor who waited for dividend instead of selling at N25.00 or even N23.00.

On the whole, do you notice the adverse effect of payment of dividends on the stocks of the NSE? Blood on the street! Panic selling every where. Some investors are even scared that stocks will go into recession again and are just selling to be a little on the safe side.

This is my position anyway. Keep on investing anyway.

What has the fall in the price of a good stock got to do with the company.

Will you sell your apartment because the price of the apartment fell from 10 million Naira to 5 million Naira even-though the apartment still generates a rental income of 600k per annum. A smart investor with assess to fund will definitely buy more of the apartment.

This is what smart stock market investors do with good stock, someone prayed that the price of FBN should fall to N15.00k, but you should ask the guy what he was doing when FBN sold for N10.00 for many months.

manie: Rather than waiting for capital appreciation in a non-dividend paying stock, I will use my dividend to increase my holding in a dividend paying stock.

You said it...A company pays me a dividend of lets say N100,000 (this is an example o)...even though the price of the company comes down momentarily due to such payment, i will rather reinvest the recieved amount into the dividend company with sound fundamentals than a company not paying any dividend or bonus.

Born 2be Rich:

You said it...A company pays me a dividend of lets say N100,000 (this is an example o)...even though the price of the company comes down momentarily due to such payment, i will rather reinvest the recieved amount into the dividend company with sound fundamentals than a company not paying any dividend or bonus.

That is my strategy or maybe use the dividend to buy an affordable property.

Born 2be Rich:

You said it...A company pays me a dividend of lets say N100,000 (this is an example o)...even though the price of the company comes down momentarily due to such payment, i will rather reinvest the recieved amount into the dividend company with sound fundamentals than a company not paying any dividend or bonus.

That is what those investors with millions of units of good stocks like Guiness, NB, Nestle, FBN, GTB etc do.

jamace: What is the value of the paid dividend compared to the depreciation of the stock after payment of dividend? Dividend paid is ALWAYS meager compared to depreciation of stock. What is the value of stocks that have paid dividend presently compared to their prices before the announcement of dividend?

Dividend is like giving you part of your money which ultimately depreciates your capital (Share value) at the point in time.

Most smart investors don't wait for dividend. They sell off once it is time for payment of dividend in order to retain their share value and then buy again after share depreciation.

Not all the time. I sold my Nestle at N850 before mark down date so that I will be able to buy back at a lower price, Nestle is still selling at over N900.

I sold some of my Nigerian Breweries shares at N150, so that I can buy back at N130. Nigerian Breweries is still selling at N160 or thereabout.

manie:


That is my strategy or maybe use the dividend to buy an affordable property.

The most interesting thing is that most of the quoted companies on the nigerian stock exchange that have high prices are dividend paying stocks...

Thanks @OP for the thread pls anybody in the house help I bought a shears as far back 2005 with union homes and av not collected a dime pls anybody have an idea on what to do

Born 2be Rich: I noticed that of recent, some stocks for example diamond bank decided not to pay dividend or bonuses so that they can grow and expand, yet some shareholders were displeased with the action leading to a sharp fall in price...

So i want to find out, as an investor, do you prefer dividend paying stocks or non dividend stocks that may rise in value in the future?

It doesn't really matter as the decision to pay or not doesn't affect the inherent value of a stock. Rather than bother on what the market does ask your self these questions.

1. Did the company fail to may because they don't have distributable profits? If yes then that's a company in trouble

2. Did the company refuse to pay because they made profits and don't have cash? If yes, then that's a company with liquidity issues

3. Is the company not paying because it made a loss in the current year despite having distributable reserves? Then that's a company either trying to crawl out of a hole or sliding further in.

4. Is the company not paying because it wishes to invest its earnings? Then you must check to see if its trailing ROE is above your expected returns or at least above local bond yields.

Diamond Banks case I think was the first

ugodre:

It doesn't really matter as the decision to pay or not doesn't affect the inherent value of a stock. Rather than bother on what the market does ask your self these questions.

1. Did the company fail to may because they don't have distributable profits? If yes then that's a company in trouble

2. Did the company refuse to pay because they made profits and don't have cash? If yes, then that's a company with liquidity issues

3. Is the company not paying because it made a loss in the current year despite having distributable reserves? Then that's a company either trying to crawl out of a hole or sliding further in.

4. Is the company not paying because it wishes to invest its earnings? Then you must check to see if its trailing ROE is above your expected returns or at least above local bond yields.

Diamond Banks case I think was the first

That is why I can not buy more of Diamond Bank's shares.

ugodre:

It doesn't really matter as the decision to pay or not doesn't affect the inherent value of a stock. Rather than bother on what the market does ask your self these questions.

1. Did the company fail to may because they don't have distributable profits? If yes then that's a company in trouble

2. Did the company refuse to pay because they made profits and don't have cash? If yes, then that's a company with liquidity issues

3. Is the company not paying because it made a loss in the current year despite having distributable reserves? Then that's a company either trying to crawl out of a hole or sliding further in.

4. Is the company not paying because it wishes to invest its earnings? Then you must check to see if its trailing ROE is above your expected returns or at least above local bond yields.

Diamond Banks case I think was the first

Thanks ugodre for the useful tips

Stock Research | Nestlé Nigeria Plc

Full Year Earnings Report

Recommendation: HOLD

INVESTMENT SUMMARY & HIGHLIGHTS

December 2012 FY results: Net income increases by 28% and revenue grows by 19% year-on-year

Nestlé Nigeria Plc released its full-year 2012 results to the Nigerian Stock Exchange on February 20, 2013. The results saw revenue increase to ₦116.71B, PBT rise to ₦25.05B and net income increase to ₦21.12B. This equates to a 19%, 38% and 28% rise year-on-year respectively. The net income figure blossomed following the monumental shrinkage in the company’s financial charges to ₦939.40m in FY 2012 from ₦3.32B in FY 2011 as well as other strategic operational savings which the company embarked upon, while sales growth was due to increased penetration and distribution of the company’s products to rural Nigeria, according to Martin Kruegel, chief financial officer of the company.

Nestlé’s financial charges shrink by 72% year-on-year as its total debt falls by 18% to ₦27.02B from ₦33.48B. Nestlé Nigeria experienced a 72% drop in financial charges from FY 2011-2012. This reduction, in our view, was largely driven by the year-on-year decline in the company’s total debt outstanding. In particular, the firm paid off its ₦4.95B bank overdraft and did not employ any bank overdraft in 2012. It also paid ₦2.31B out of its long term borrowings of ₦25.87B. This brings the company’s long term borrowings for FY 2012 to ₦23.56B.

Profit margins on an upward run year-on-year, despite increases in taxation and effective tax rate. Nestlé’s effective tax rate climbed to 18.44% in FY 2012 from 10.30% in FY 2011, although still less than the regulatory requirement of 32%, while its FY 2012 taxation more than doubled the FY 2011 figure. Notwithstanding these increases, the company’s profit margin indicators came out higher than in the previous year. Specifically, on a year-on-year basis, gross profit margin, PBT margin and net profit margin rose by 151 basis points (bps), 318 bps and 126 bps respectively to reach 42.98%, 21.55% and 18.10%. We believe that the drop in the company’s cost of sales (relative to revenue) as well as the aforementioned decreases in financial charges plus the fact that the company’s revenue grew at a faster rate than its cost of sales, supported the year-on-year rise in the company’s profit margin figures.



March 01, 2013
12 months ended December 31, 2012

Income Statement Data (₦′m)
2012-FY′m 2011-FY’m %change
Revenue 116,71 97,96 19
PBT 25,05 18,20 38
Tax (3,91) (1,70) 130
PAT 21,14 16,50 28

Source: Annual Report, Nestle Nigeria

Balance Sheet Data (₦′m)
2012-FY′m 2011-FY’m %change
Cash 3,81 1,07 256
Inventories 8,78 9,10 -11
Creditors 19,00 14,52 31
Debtors 13,46 10,98 23

Fixed Asset 62,16 55,02 13

Net Assets 34,19 23,21 47

Source: Annual Report, Nestle Nigeria

Stock Data
Price* ₦886.00
52-week range ₦400- ₦981
Lifetime High ₦981
Outstanding Shares (‘m) 793

Market Cap. (₦’m) 777,933

Current PE 33.24x

NSE Ticker NESTLE

Bloomberg Ticker NESTLE: NL

Reuters Ticker NESTLE. LG

* As of March 01, 2013




Valuation shows that Nestlé is fairly valued at its current market price of ₦886.00. The stock currently has a 2.40% potential gain (without adjusting for the required rate of return and transaction costs) given its market price of ₦886.00 (as at March 01, 2013) relative to our price target of ₦907.24. We therefore place a Neutral outlook on the company and a Hold recommendation on its stock. Our recommendation and outlook directly follow from valuation concerns—that is, estimated price target being just slightly more than the stock’s current market price but not in excess of our 20 percent minimum upside threshold which a stock’s upside must reach and exceed before we place a buy recommendation and a positive outlook on it. Our financial performance expectations for Q1 2013 are positively bullish for revenue and net income and for revenue especially, considering the company’s recent focused plans to triple its sales to ₦350B in the next 10 years as the consumer market for food and cereal booms in Nigeria, although this is not sufficient to fundamentally justify a positive outlook for the company at the current time given its already high stock price. Details on how the price target was arrived at can be found in the valuation section of this report.

Investment Conclusion: A fairly valued stock with a 2.40% unrealized potential gain. The company’s share price has risen unprecedentedly in the last few weeks. From its closing price of ₦700.00 on the last trading day of 2012 (December 31, 2012), the stock rose by more than 40% to its all-time-high price of ₦981.00 on February 20, 2013. We believe that the stock is overly expensive in Naira terms, but we do not accept that it is grossly overvalued at its current market price of ₦886.00. Investors should kindly note that, just as there is a marked difference between cheap and undervalued, there is also a clear difference between expensive and overvalued, and that a stock is expensive in Naira terms does not necessarily imply it is overvalued in valuation terms and vice versa.

Taking investor sentiments into cognizance, and the fact that Nestlé has declared a dividend of ₦18.50 per share, we expect a largely volatile trend in the stock as income investors flood the market to execute trade mandates. However, we advise speculative investors or those in the market for the shortest term, to short the stock before long—without looking back—as we believe that the capital appreciation of over 40%, which the stock recorded from December 31 2012 to February 20 2013 when it reached its all-time-high, cannot be replicated in the near-term. The stock currently trades at a P/E of 33.24x, a dividend yield of 2.09%, an earnings yield of 3.01%, a PEG of 1.19x and a P/B of 20.54x. These figures, in addition to other valid concerns raised above, justify our position. In any case, we will continue to monitor new developments.

Overall, the company recorded an EPS growth of 28% to ₦26.67 from ₦20.81 in FY 2011 and has proposed a dividend of ₦18.50 for FY 2012, up from ₦11.05 in FY
2011. This represents a dividend yield of 2.09% on the current market price and a dividend pay-out ratio of 69.37% for the financial year that ended on December 31, 2012.

EQUITY VALUATION ANALYSIS

Our valuation analysis shows that Nestlé is fairly valued on a non-risk adjusted basis given its market price of ₦886.00 relative to our price target estimate of ₦907.24. In arriving at this target price for Nestle, we employed the EV/EBITDA relative valuation methodology. We obtained our trailing twelve month (TTM) EV/EBITDA multiple using the company’s FY 2012 results. We utilized the closing price of the stock on December 31, 2012, which was the last trading day for the 2012 financial year, to calculate the company’s year-end market capitalization. We then used this market capitalization, alongside the company’s net debt, to compute the TTM EV/EBITDA multiple. This yielded a multiple of 19.85X for FY 2012 and coincided with the base multiple used for our valuation since consideration is only given to TTM figures in our analysis.

Our EBITDA forecast for FY 2013 in our valuation is ₦37.51B. We multiplied this figure by our base multiple of 19.85X to get Nestlé’s Enterprise Value (EV) forecast of ₦744.57B. From this, we subtracted the expected net debt of ₦25.13B to obtain Nestlé’s equity value of ₦719.44B after accounting for the company’s cash and cash equivalents, payables and receivables. We then divided this equity value by the company’s current outstanding shares of 793 million to generate our target price of
₦907.24.

bayulll01: Thanks @OP for the thread pls anybody in the house help I bought a shears as far back 2005 with union homes and av not collected a dime pls anybody have an idea on what to do

Kindly get in touch with their registrars at UNION REGISTRARS LIMITED 2, BURMA ROAD, APAPA, LAGOS...

That is why I hate dividend. Imagine IBTC giving a div of N0.10k What is that to a man who has 100,000 units of IBTC shares? Even those who have million units will lose millions to get a dividend of few thousands of naira.

Abeg, count me out of dividend! Give me BONUS or forget it!

jamace: That is why I hate dividend. Imagine IBTC giving a div of N0.10k What is that to a man who has 100,000 units of IBTC shares? Even those who have million units will lose millions to get a dividend of few thousands of naira.

Abeg, count me out of dividend! Give me BONUS or forget it!

IBTC is a poor performer, the stock is over priced thank God I dont have the stock. I expect the price of the stock to crash, the stock's fundamentals do not support its current price.

What is the value of a bonus from a stock like IBTC, they are just postponing the evil day cos the stock will have more units to shares and if the fundamentals does not improve tremendously the EPS will fall next year.

If you need the money, dividend stocks are better for you. If not, growth stocks are probably betters or you.

Seun: If you need the money, dividend stocks are better for you. If not, growth stocks are probably betters or you.

Even if I dont need the money, I will still prefer a dividend paying company. I can reinvest the dividend into the same stock, another stock or diversify into another asset class.

Stocks that are doing very well on the Nigerian stock exchange are the dividend paying stocks.

manie:

Even if I dont need the money, I will still prefer a dividend paying company. I can reinvest the dividend into the same stock, another stock or diversify into another asset class.

Stocks that are doing very well on the Nigerian stock exchange are the dividend paying stocks.

Thanks, you said it all...

Seun: If you need the money, dividend stocks are better for you. If not, growth stocks are probably betters or you.

@seun, if you search through history of the Nigerian stock exchange, the stocks that performs well are the dividend paying stock...You tend to benefit from the dividend and capital appreciation...however, not all stocks that pay dividend are healthy, so it is important for one to do his home work.

manie: Even if I dont need the money, I will still prefer a dividend paying company. I can reinvest the dividend into the same stock, another stock or diversify into another asset class..

There are costs involved in reinvesting dividends manually. Fees you have to pay to your broker as well as the NSE and your bank. And taxes, as well. These costs can reduce or eliminate the benefits of having the option of reinvesting the dividend in a different stock, which is probably the only benefit of getting dividends when you don't need the money.

Why should corporate managers delay shareholders benefits, when the managers will never delay their own benefits.


Dividend to shareholders is a fraction of what the company pays as salaries and benefits to the workers. If they can struggle to pay workers' salaries, they should be able to pay dividends to shareholders. Anything short of this, is that the management are not sincere, incompetent or selfish.

Seun:
There are costs involved in reinvesting dividends manually. Fees you have to pay to your broker as well as the NSE and your bank. And taxes, as well. These costs can reduce or eliminate the benefits of having the option of reinvesting the dividend in a different stock, which is probably the only benefit of getting dividends when you don't need the money.

I see that as part of the running cost of managing my investment.

Born 2be Rich: @seun, if you search through history of the Nigerian stock exchange, the stocks that performs well are the dividend paying stock...You tend to benefit from the dividend and capital appreciation.

Correlation does not imply causation. Certainly, healthy companies are more likely to be able to afford to pay dividends, but that doesn't mean shareholders who don't need the money at the moment would not be better off if those dividend paying companies decided to retain their earnings and reinvest for more growth. I don't think we disagree at all; we're just talking about different things.

However, not all stocks that pay dividend are healthy, so it is important for one to do his home work

Yep.

Seun:
Correlation does not imply causation. Certainly, healthy companies are more likely to be able to afford to pay dividends, but that doesn't mean shareholders who don't need the money at the moment would not be better off if those dividend paying companies decided to retain their earnings and reinvest for more growth. I don't think we disagree at all; we're just talking about different things.

Dividend paying companies also retain money for future growth, before the profit is declared you look at the investment made by the company for future growth, you also look at percentage of the profit after tax that is retained.

A good company should have a dividend policy, some companies pay 50% of their profit after tax as dividend, but a 0% dividend policy of profit after tax in the name of growth is not too good for investors like me.

Seun:
Correlation does not imply causation. Certainly, healthy companies are more likely to be able to afford to pay dividends, but that doesn't mean shareholders who don't need the money at the moment would not be better off if those dividend paying companies decided to retain their earnings and reinvest for more growth. I don't think we disagree at all; we're just talking about different things.

Yep.

I agree...we might be in on different boats but we are heading towards the same direction

ugodre:

It doesn't really matter as the decision to pay or not doesn't affect the inherent value of a stock. Rather than bother on what the market does ask your self these questions.

1. Did the company fail to may because they don't have distributable profits? If yes then that's a company in trouble

2. Did the company refuse to pay because they made profits and don't have cash? If yes, then that's a company with liquidity issues

3. Is the company not paying because it made a loss in the current year despite having distributable reserves? Then that's a company either trying to crawl out of a hole or sliding further in.

4. Is the company not paying because it wishes to invest its earnings? Then you must check to see if its trailing ROE is above your expected returns or at least above local bond yields.

Diamond Banks case I think was the first

Couldnt you also say that diamond wanted to keep the cash since they still intend to raise $750m??

shigidi:

Couldnt you also say that diamond wanted to keep the cash since they still intend to raise $750m??

That is not the case. They just don't have distributable reserves so can't pay dividends. Dividends can only be paid if a company has distributable reserves or not.

manie:


Not all the time. I sold my Nestle at N850 before mark down date so that I will be able to buy back at a lower price, Nestle is still selling at over N900.

I sold some of my Nigerian Breweries shares at N150, so that I can buy back at N130. Nigerian Breweries is still selling at N160 or thereabout.

Exactly how does one define an exit point? For instance, i purchased skye a6 5.50 and did not pull the trigger at 7.05. Now it lingers at 5.80. Do you have a percentage appreciation at which you call it quits with the hope of re-entering?

shigidi: Exactly how does one define an exit point? For instance, i purchased skye a6 5.50 and did not pull the trigger at 7.05. Now it lingers at 5.80. Do you have a percentage appreciation at which you call it quits with the hope of re-entering?

The correct exit point is when a stock is selling for more than what it's worth. When a stock worth 10 naira is selling for 12 naira, you sell. Whether you bought that stock at 8 naira or 15 naira does not matter: your purchase price doesn't matter. That's a sunk cost in Economics. It's completely irrelevant. What matters is whether or not the stock is selling for significantly more than what you think it's truly worth based on expected future profits.. If it is, you sell. If not, you hold or you buy.

Seun:
The correct exit point is when a stock is selling for more than what it's worth. When a stock worth 10 naira is selling for 12 naira, you sell. Whether you bought that stock at 8 naira or 15 naira does not matter: your purchase price doesn't matter. That's a sunk cost in Economics. It's completely irrelevant. What matters is whether or not the stock is selling for significantly more than what you think it's truly worth based on expected future profits.. If it is, you sell. If not, you hold or you buy.

How do you determine the worth of a stock?

kodewrita: How do you determine the worth of a stock?

1. Determine how much you would reasonably pay for the entire company if you had enough money to buy it.
2. Divide this by the number of shares issued by the company. That gives you the true value of the stock.