Stocks retirees jostle to invest in and why
The gale of retrenchments and retirements that swept across the labour industry of late and the huge severance package paid to some of the affected people have led to increased investment in stock market. But the consistent bearishness of the market, which resulted in many equities depreciating in value and the attendant losses sustained by investors has made many retirees to be very careful in deciding the stocks to invest in.
Investigation by The Guardian revealed that many retirees, before being paid their benefits were sent to investment advisers by their employers to be tutored on how to invest their retirement funds.
Similar pre-retirement preparation for military personnel gave rise to the establishment of the Armed Forces Resettlement Centre, Oshodi, Lagos, to prepare soldiers for their post-military life.
Some retirees said the knowledge they gained from such programmes has been of immense help in deciding what to do with their pension funds.
Sunday Imonitie, who said he was one of those affected by the retrenchment carried out by the Power Holding Company of Nigeria Plc, said he was able to know through pre-retirement training that when investing retirement funds, you should make sure you invest wisely and safely. And that you should bear in mind that since there would be no regular monthly salary as it used to be the case, your retirement portfolio requires careful evaluation of immediate cash needs, risk tolerance, time horizon and the ability to endure or bear stocks’ volatility.
“We were advised to focus on companies with durable business models, exemplary management teams and strong financial performances,” he said.
Another retiree, James Uka, said that apart from looking at the strong competitive advantage of a company before deciding to invest in it, you should also have to investigate the company’s commitment to research and development efforts because it is such research and commitment that will determine the company’s future and growth.
Isiaka Adeleke, an ex- staff of NITEL, said they were taught to invest in stable and predictable companies, preferably ones that have consistently been paying dividends over the years.
According to him, we retirees are always looking for a stable income portfolio; those occasional dividends can go a long way in providing unexpected extra income that can help to solve some financial commitments without eating into the principal.
An online publication: Ultimate Guide to retirement identified three main investment types – stocks, bonds and cash.
It stated: “Your retirement accounts should probably contain a mix of stocks and bonds and perhaps a small amount of cash, too.”
According to the publication, some people also invest in ‘hard assets’ like real estate or gold, but those are generally not well suited for retirement accounts.
“Investment in stocks or shares provides an opportunity to be a co-owner of a company. They have historically provided more long-term growth than bonds. But they’ve also been more volatile, so they can lose a lot of money in the short term, while bonds are basically interest bearing loans you make to a company or government. They generally offer smaller long-term returns than stocks do, but also less short-term risk,” it stated, adding:
“Cash, or cash equivalent’ like a money-market fund, is the least risky asset class, but it also offers the lowest return.
“To build a nest egg large enough to fund your life in retirement, which could last 30 years or more, you’ll need the growth that stocks provide. The catch is that stocks are generally more volatile than bonds, which means that a stock-heavy portfolio can give you some hair-raising moments (or years).
“So, most people invest in a mix of stocks and bonds, enabling them to both capture some of the long-term growth of stocks and benefit from the relative stability of bonds during stock market downturns,” the publication concluded.
Mike Moyowa Adejare, an investment expert, cautioned retirees against using their retirement fund to engage in trading on shares as opposed to investing in shares.
According to him, there are two categories of investors in stock market, namely traders, who trade on stocks by buying today and sell tomorrow when the prices of the stocks they bought yesterday go up. Their purpose of dealing in stocks is to take profit.
“The second category is the traditional investors. This set of investors’ aim is not to buy today and sell tomorrow. Their aims are to be co-owners of the companies in which they acquired shares. The rise and fall in the prices of the equities do not bother them. They wait patiently for dividends or bonuses that the companies give out regularly.
“The problem with trading on shares is that as a retired person you are no longer on regular salary that you can use as a backup in case you encounter some losses. Though trading on stocks can lead to exceptional rewards, it also comes with high risk,” he said.
According to him, the stocks that are beneficial to retirees are those that offer resiliency and pay dividends. The prices of such stocks are usually stable in the market because the investors who have them do not always want to sell them.
When The Guardian examined the stock market, it discovered some of these stocks. They include among others, PRESCO, Unilever, Lafarge, Berger Paints, Guinness, Seven-Up, J.Berger Plc, Ashaka Cement, Cadbury, CAP, Dangote Cement, Flourmill, Guaranty Trust Bank, International Breweries, MRS, Okomu Oil, Forte Oil, Mobil, PZ, Stanbic IBTC, Total, Zenith etc.
On dividend payouts, some companies have maintained their dividend and bonus payments. Nestle recently paid 18.50 per share, Guinness and Total N8.00 each, AP N5.20 to mention a few.
Nigerian Breweries, which tops retirees’ treasured firms, has indeed survived and declaring mouth watery dividends to its shareholders.
Records from the Nigerian Stock Exchange revealed that the company has consistently added value to shareholders investments with its dividend payouts.
For example, the company directors had in 2013 financial year recommended the payment of a total dividend of N34.032 billion, that is, N4.50 per ordinary share of 50 kobo each.
Also, during the company’ s 69th yearly general meeting held last year in Lagos, the shareholders received a total dividend of N37.205 billion, the biggest cash payout in the history of the company. The amount represents a payout of N4.75 per ordinary share of fifty kobo each.
The Chairman, Board of Directors of the company, Chief Kola Jamodu said the board had earlier paid an interim dividend of N9.453billionn, representing N1.25 per ordinary share of fifty kobo each in October 2014.
For the half-year ended June 30, 2015, the company reported revenue of N151.7 billion. This represents an increase of 7.2 per cent above the N141.5 billion recorded in the corresponding period of 2014. The company ended the period with a gross profit of N30.99 billion and the profit after tax stood at N21.5 billion.
For the 2015 financial result released recently by the company, it announced a 10.3 per cent increase in revenue from N266 billion recorded in 2014 to N293 billion in the 2015 financial year.
The results showed that the company’s shareholders would enjoy a total dividend of N4.80 kobo per ordinary share of fifty kobo each for the 2015 financial year. If approved by shareholders at the upcoming yearly general meeting, the amount would be the highest dividend ever paid by the company in its 70-year history.
The company had earlier paid an interim dividend of N9.5 billion, that is, N1.20 per ordinary share of 50 Kobo. Thus, the final dividend will be N28.5 billion (N3.60 per share).
Commenting on the company’s performance, the National President, Constance shareholders association of Nigeria, Shehu Mallam Mikail, noted that the dividend declared by the company was a welcome development.
The President, Renaissance Shareholders Association, Timothy Olufemi said: “The result is fine. Commendable. It may be the best on NSE for 2015 accounts.”
The Managing Director of Crane Securities Limited, Mike Eze described the result as excellent.
“Like you have seen there is adequate reaction from traders/stockbrokers by a reversal in their pricing of the company’s shares.
“I think the company has done well despite the harsh operating environment,” he said.
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