Building Wealth with Dividend Stocks in the Nigerian Stock Market

Dividends - Stocks Secret Weapon

Alex Uwajeh

Copyright 2012 by Alex Uwajeh

Smashwords Edition

Legal Disclaimers

All contents copyright © 2012 by Alex Uwajeh and http://www.247BroadStreet.com. All rights reserved. No part of this document or accompanying files may be reproduced or transmitted in any form, electronic or otherwise, by any means without the prior written permission of the publisher.

This book is presented to you for informational purposes only and is not a substitution for any professional advice. The contents herein are based on the views and opinions of the author and all associated contributors.

While every effort has been made by the author and all associated contributors to present accurate and up to date information within this document, it is apparent technologies rapidly change. Therefore, the author and all associated contributors reserve the right to update the contents and information provided herein as these changes progress. The author and/or all associated contributors take no responsibility for any errors or omissions if such discrepancies exist within this document.

The author and all other contributors accept no responsibility for any consequential actions taken, whether monetary, legal, or otherwise, by any and all readers of the materials provided. It is the readers sole responsibility to seek professional advice before taking any action on their part.

Readers results will vary based on their skill level and individual perception of the contents herein, and thus no guarantees, monetarily or otherwise, can be made accurately. Therefore, no guarantees are made.

Acknowledgements

I am deeply thankful to my wife, Sarah and children, Ikechukwu, Nneka and Isioma for their loving support.

Also I would like to thank Chief and Mrs Sebastian Adigwe for their never ending love through both good and challenging times.

As always, I want to thank God for His grace, wisdom and insight.

Table of Contents

Introduction

Finding ways to build wealth and create a solid stream of passive income can be difficult for many investors. Yet, with the right information – and the right market conditions – it can be quite easy to build a strong portfolio of high-yielding stocks that continue to generate income for as long as you own them.

The key to developing this type of portfolio is to choose a market known for underpriced, over-performing stocks. When you’ve located a market just like this, you then build a carefully selected portfolio designed to build wealth via capital and reap the rewards from high-yielding dividend payments.

Far too many investors set their sights on investing in their own local stock markets, believing local shares of local companies may represent a certain level of security for them.

What these investors may be missing is a huge opportunity to reap massive profits and high yields in international stock markets that freely allow international investors to buy stocks and shares very easily.

You see, international investing can take on three separate levels of wealth creation that many investors don’t always recognize:

Growth of stock values in a foreign region

Increased yields on dividend returns

Increase in capital value due to changing currency exchange rates

This is where the Nigerian Stock Market enters the picture.

Compared to some of the enormously large stock markets around the world, such as the New York Stock Exchange, the Nigerian Stock Exchange is relatively small. Yet it has a market capitalization of approximately N15 trillion (Nigerian Naira, which is approximately $125 billion US dollars).

The vast majority of American investors hold the view of stock market investing as buying in low and selling once the stock price has risen far enough to represent a profit. Essentially, this is called trading. While this tactic is ideal for building capital value, it may not offer a sustainable long-term strategy to build wealth and create a stream of passive income.

By comparison, investing relates more to buying into a particular market with the view to holding onto the investment long enough to see it return solid results. This may be in the form of capital growth, but it can also be in the form of dividend income that recurs every year for as long as that investor continues to retain ownership of those stocks.

This Book is designed to teach you exactly how to begin investing within the Nigerian Stock Market. You’ll also learn how to identify good value stocks worth holding for the long term that will also yield a healthy level of repeat income.

Brief History of the Nigerian Stock Market

The Nigerian Stock Exchange (NSE) was established back in 1960 and was originally known as the Lagos Stock Exchange. For the past 50 years, it has grown to become Africa’s fastest growing Stock Exchange. It also holds a long history for having been the most profitable.

The NSE is regulated by the Securities and Exchange Commission. This offers investors a certain peace of mind that the market is monitored and regulated in an effort to avoid any unfair trading practices and to deter any manipulations within the market.

The NSE is also a member of the World Federation of Exchanges (WFE – formerly the FIBV). This is the international organization for securities and derivative markets.

The Nigerian Government encourages investment from international investors. They actively abolished the legislation that once prevented international investors from injecting money into the Nigerian economy. This abolition means that foreign brokers can elect to enlist as dealers on the NSE. Foreign investors of any nationality are now able to invest in the Nigerian Stock Market easily.

NSE-listed companies are encouraged to create multiple listings for their stocks in other African Stock Exchanges as well as on foreign Stock Exchanges. This increases their trading range and can help to increase their value to investors in some instances.

Trading times and hours for the NSE are a little more limited than larger markets. The NSE operates from 9.30am to 4.30pm Monday to Friday.

Trading fees and charges for trading on the Nigerian Stock Exchange are also considerably lower than many local markets and brokerages. At this time, the charges are as follows:

3% commission on the traded value of stocks

1% Securities and Exchange Commission fee

Foreign investors may be subjected to a 10% withholding tax on dividend incomes, which is still an extremely competitive rate.

The differences in exchange rate over to Nigerian Naira represent further opportunities to enter the market at relatively low local currency capital amounts. Yet, there is the opportunity to benefit from the fluctuations present between the NGN and most other global currencies.

Trading vs. Investing

Trading is the new buzzword when it comes to the stock market and investing has become a term associated with retirees or people who are not “in” with the times. After all, the whole point of the stock market is to buy low and sell high, right. Why wait for years to see a trickle of a return through dividends when you can make an instant killing by purchasing stocks dirt-cheap and then turning around and selling them the next day for a profit.

Everyone on Wall Street is doing it so they must know something. After all, they are experts, right? What the experts on Wall Street don’t tell you is that they will happily trade with their clients’ money but prefer investing with their own because of the lower level of risk.

The first thing you need to understand is the difference between trading and investing. Nowadays, most people consider trading to be short-term, i.e. buying stocks and selling them the same day or within a few days, weeks or months at most. In fact, if you’ve held on to equity for a few months, you are already bordering on being an investor. But we’ll consider trading any form of transaction in which the end goal is to make a quick profit from the purchase and sale of a company’s shares within a relatively short time frame.

On the other hand, when you invest in stock, you are looking at the bigger picture. Your goal is to make as good a return on your investment as possible, which often means considering dividends and not just share price. Sadly, though, even many investors overlook the importance and value of dividends nowadays, focusing solely on share price. But dividends offer the best of both worlds because dividend stocks will offer an immediate return through dividend payouts, as well as a long term one through share price appreciation, with a medium to low level of risk involved.

Choosing a Wealth Creation Strategy

The real key to building true wealth in any market or investment portfolio is to create a strategy before you begin. It’s vitally important to assess your own wealth-creation goals and your perceived time span prior to beginning. This will give you a much clearer view of your own investment activities and the level of return you will need to achieve to reach the goals you’ve set.

Wealth creation can take many forms, but the most commonly sought after is capital gain. The vast majority of investors seek to invest their money into an investment vehicle and then see that original amount of capital rise to a larger value.

While there is nothing wrong with this particular strategy, it does leave out one crucial element of wealth creation that really can provide the cornerstone of any investment portfolio: income.

Consider this: buying stocks at a low value and then selling them again at a higher value represents profit in the form of capital growth. Once you sink your money into that particular investment, you are required to wait until the values have altered sufficiently before selling that investment again to realize the gains in your account.

This can be a highly successful investment strategy for many people. Yet, the moment you stop trading your stocks, your profits also stop. In this effect, trading becomes a job rather than a true vehicle for wealth creation.