WHAT SHOULD I DO WITH MY DIVIDENDS?

INVESTMENT TALK WITH EMMA

Emmanuel Ewumi

(Over 20 years investing experience in Nigeria’s financial markets)

 A young man called me last month asking of what he should do with his dividends, this week I will share what I told the man with members of this forum.

The dividend season is here again and a number of investors may be in the dilemma of what to do with their dividends. The months of April to July is a period investors look up to, because this is the time when dividends of most companies listed on the Nigerian Stock Exchange are paid.

The financial year of most companies end in December and March, the audited financial report and dividend declaration are usually made public about 3 months after the financial year that is when all things are equal.

So far investors have been smiling to the bank courtesy of the dividends paid by their companies. I have received dividends from the following companies in the last four weeks, UBA Plc, Zenith Bank, NB, APR, Access Bank, GTB, just last week which ended on 10^th May 2014 UBA Capital and Custodian and Allied Insurance dividends were paid. The declared dividends of First Bank, Skye Bank, WAPCO, NAHCO, Dangote Sugar etc are expected to be paid before the end of May 2014.

I told the young man who called me that what he should do with his dividends would be determined by his age, needs, source of income and his net-worth. The young man was told to do the following with his dividends.

1. REINVEST: If you are a young investor who has many working years ahead of him, dividend reinvestment is a good strategy which has the ability to compound wealth. The investor should identify good stocks which have innovative management, good products and currently selling at a discount. Prices of most stocks do fall after dividend payment, long term investors should see the fall in stock prices after dividend payment as an opportunity to reinvest.

2. DIVERSIFY: A shrewd investor needs to have investments in different assets classes and businesses. Dividends can be used to diversify into other small businesses or asset classes such as Real Estate, Treasury Bills, Bonds, Savings and REIT.

3. PROJECT: Dividends can also be used to finance capital projects; I used my dividends to roof my house some few years ago. One of my stockbrokers also used his dividends to pay for his son’s Post Graduate Studies in Canada. Another investor also used his dividends as the seed capital which his unemployed son used in establishing a business.

4. SHARE: Stock market investor should see themselves as being privilege to understand the wealth creating ability of the capital market. We must share this knowledge with others, part of our dividends should be set aside for good causes, helping the less privilege and supporting our religious bodies.

5. ENJOY: Dividends are the fruits of our labours and investments. Investors must always remember to use part of their dividends to spoil and enjoy themselves. Please note that you are only allowed to use part and not most of your dividend income for enjoyment.

6. SPEND: This will be determined by the age and achievement of the investor. I will not advice a 65 years old investor who has trained all his children up to University level, his children are all doing well in their various professionand has built his own house to reinvest, diversify or use his dividends for a project. At that level such an investor has the liberty to spend his dividends on himself, health, medical bills, help the less privileged old people, go on vacation around the world or invest on his grand children education. It is my prayer that we will all be able to do all these when we attain the age of 60.