Investing in the Nigerian Stock Exchange: A Comprehensive Guide

Imagine earning money even while you sleep. Sounds great, right? That’s exactly what dividend stocks can do for you. If you’re an investor in Nigeria, you’ve probably heard of stocks that pay out a portion of their profits to shareholders. But did you know that some of the top companies in Nigeria offer high dividend yields that can boost your income without you lifting a finger? In this guide, I will dive into the world of dividend stocks and highlight some of the best-paying ones and how you can invest in stocks in Nigeria. Whether you’re looking to grow your savings or create a steady stream of passive income, these high-dividend stocks can help you reach your financial goals quicker than you think.

Key Points

Dividend stocks are shares from companies that regularly distribute part of their profits to shareholders. This offers investors both income and the potential for stock price appreciation, making them ideal for building wealth.

Companies pay dividends in different forms, including cash, stock, property, scrip, and liquidating dividends. Each type offers varying levels of risk and reward, allowing investors to choose based on their goals.

Knowing key dates like the ex-dividend date, record date, and payment date is essential for investors to maximize their dividend returns. Missing the ex-dividend date means missing out on the next payout.

Companies like Zenith Bank, GTCO, and Custodian Investment Plc are among Nigeria’s top dividend-paying stocks, offering yields that range from 6% to over 9%. These firms present strong financials and consistent dividends, making them ideal for income-focused investors.

Some companies offer DRIPs, which allow investors to automatically reinvest their dividends to purchase more shares. This compounds returns and accelerates the growth of your investment over time.

What Is a Stockbroker?

A stockbroker is a financial professional who executes orders in the market on behalf of clients. A stockbroker may also be known as a registered representative (RR) or an investment advisor. Stockbrokers are individuals or companies authorized to buy and sell stocks or other investments.

Stockbrokers buy and sell stocks and other securities for retail and institutional clients through a stock exchange or over the counter in return for a fee or commission. They may also act as financial advisors, giving advice to clients on their investment portfolio and investment options to reach a financial goal. Understanding how to invest in stocks in Nigeria requires familiarity with the roles of stockbrokers, the Nigerian Stock Exchange, and the steps involved in opening a brokerage account.

How to Invest in Stocks in Nigeria 2024

The following are 5 easy steps on how to invest in stocks in Nigeria in 2024. The steps include:

#1. Research and Choose a Stockbroker

A stockbroker is an appointed agent who is authorized to execute, buy, or sell instructions on an investor’s account. Within the purview of the Nigerian stock market, a stockbroker will refer to a broker-dealer firm that is a dealing member of the NSE and registered with the SEC. In deciding a stockbroker, important factors to consider include their ease of access, their affordability, since some firms place a minimum amount for opening an account, their integrity/reputation, and their status with the NSE/SEC.

#2. Open a Brokerage Account

To participate in the NSE, all investors have to open a brokerage account with one of the approved stock broking firms in the country. Currently, there are over 100 active stockbroking firms, with the most popular being CardinalStone Securities, Meristem Stockbrokers, Afrinvest Securities, CSL Stockbrokers, Stanbic IBTC Stockbrokers, Calyx Securities, and FBNQUest, among others. To do this, you’ll have to fill out an application and provide certain documents, such as means of identification, bank account details, passport photos, signatures, and next-of-kin information.

#3. Register with CSCS (optional)

The Central Securities Clearing System Plc (CSCS) serves as the authorized entity responsible for central depository services, clearing, and settlement of transactions within the Nigerian capital market. For individual investors looking to engage in trading Nigerian stocks, it’s advisable to register with CSCS; however, it is not necessary. Consider CSCS as a vast storage facility for all the accounts handled by stockbrokers in Nigeria. Having an account with CSCS provides you with a personalized window to monitor your investments.

#4. Fund Your Account and Trade

Your stockbroker will provide you with their bank account details, and they will fund your account as soon as any payment you make is confirmed. Investors trade on the floor of the exchange only through stockbrokers. Trade instructions issued by investors are received by stockbrokers either by traditional order papers or from online trading platforms.

#5. Collect Benefits on Your Investments and Withdraw

There are 3 ways through which investors make money: dividends, capital appreciation, and bonus shares. Most companies pay a final dividend at the end of the financial year, while some others pay an interim dividend around the middle of the financial year. To withdraw funds from your online brokerage app, visit the website and select the withdrawal option.

Benefits of Investing in Nigerian Stocks

There are quite a number of benefits to investing in Nigerian stocks. A few of the benefits include:

#1. Potential for Capital Appreciation

Investing in Nigerian stocks offers the potential for capital appreciation, where the value of shares increases over time. This means that if you buy shares at a lower price and sell them at a higher price, you’ll earn a profit. For instance, if you invested ₦100,000 in a Nigerian stock and its value grew by 20% in a year, your investment would be worth ₦120,000. For example, a shareholder buys 100 shares of a Nigerian bank at ₦50 per share. After a year, the bank’s profits surge, and the share price rises to ₦70. The shareholder sells their shares, earning a ₦20 profit per share, or a total gain of ₦2,000.

#2. Diversification

Diversification spreads risk and increases potential gains by investing in various sectors. This reduces exposure to market fluctuations. Imagine investing in a mix of banking, oil and gas, and consumer goods stocks. If one sector experiences a downturn, the others can help balance your portfolio. For example, an investor allocates their portfolio: 30% to banking stocks, 20% to oil and gas, 30% to consumer goods, and 20% to technology. When the banking sector faces challenges, the other sectors’ growth helps offset potential losses.

#3. Liquidity

The Nigerian Stock Exchange (NSE) provides a platform for buying and selling shares, ensuring liquidity. Investors can easily trade shares, converting them to cash when needed.

Example: A shareholder needs urgent funds and sells their shares on the NSE. The transaction is executed quickly, providing the necessary cash.

#4. Ownership

As a shareholder, investors have ownership rights, including voting privileges and potential dividend payments. This allows them to participate in company decision-making and receive a portion of profits. Example: A shareholder attends a company’s annual general meeting and votes on key decisions. They also receive dividend payments, providing regular income.

#5. Long-term Wealth Creation

Historically, the Nigerian stock market has provided significant returns over the long term. Investors can benefit from compound growth, building substantial wealth. For example, an investor starts with ₦100,000 and earns an average annual return of 10%. After 10 years, their investment grows to ₦259,000, demonstrating the power of long-term investing.

Risks of Investing in Nigerian Stocks

Investing in Nigerian stocks can be a lucrative opportunity, but it comes with its fair share of risks. From market volatility to economic instability, understanding these potential pitfalls is crucial for making informed investment decisions. Some of these risks include:

#1. Price Volatility

Stock prices can fluctuate rapidly due to market forces, impacting investment value. Prices may drop suddenly, resulting in losses. Example: A shareholder buys shares at ₦60, but market sentiment shifts, and the price drops to ₦40. The shareholder incurs a ₦20 loss per share.

#2. Market Risks

Economic trends, supply and demand, and investor sentiment can impact stock performance. External factors, such as inflation or global events, can also affect the market. Example: A global economic downturn reduces demand for Nigerian exports, negatively impacting the stock market.

#3. Company-specific Risks

Poor company performance or management issues can negatively affect stock value. For example, a company’s CEO resigns suddenly, causing investor uncertainty and a decline in share price.

#4. Liquidity Risks

Some stocks may be difficult to sell quickly or at a fair price, posing liquidity risks. Example: A shareholder tries to sell shares in a thinly traded stock but struggles to find buyers, resulting in a lower sale price.

#5. Regulatory Risks

Changes in government policies or regulations can impact the stock market. For example, a new tax policy increases costs for Nigerian companies, negatively affecting their profitability and stock prices.

Understanding the risks associated with investing in dividend stocks is crucial for making informed decisions. Below is a FREE Risk Assessment Checklist that can help you evaluate these risks effectively:

Download

Risk Assessment Checklist for Dividend Stocks.PDF

DOWNLOAD

What Is the Difference Between a Broker and a Stockbroker?

A brokerage is the commission amount that the broker gets for being an intermediary for the deal carried out. A stockbroker is an investment advisor who buys and sells stocks and securities over the counter. In a stock market, the transactions conducted by the stockbroker provide for a fee or commission.

What is the best app for buying stocks in Nigeria?

Exness is our best online trading platform in Nigeria. Its mobile app has over 10 million downloads and good reviews from Android users. Its Web trader is fast and user-friendly. It offers MT4/5 and is low-cost. Runners-up for the best online trading platform in Nigeria are Pepperstone and HF Markets.

How Do I Calculate Shares?

If you know the market cap of a company and its share price, then figuring out the number of outstanding shares is easy. Just take the market capitalization figure and divide it by the share price. The result is the number of shares on which the market capitalization number was based.

Conclusion

When you invest in stocks in Nigeria, you will be sure of a stable income while still benefiting from potential stock appreciation. In Nigeria, high-dividend-paying stocks like Zenith Bank and GTCO are paving the way for investors seeking both growth and security. By understanding how dividends work and keeping track of key dividend dates, you can make informed decisions and enjoy consistent investment returns.

Whether you’re aiming to build wealth or earn passive income, these top dividend-paying stocks in Nigeria offer a golden opportunity to maximize your financial potential.