Investment objectives differ from one investor to another. Broadly, however, investment objectives range from capital appreciation to capital preservation and constant income generation. The objective of constant income generation comes through investing in Bonds and dividend paying stocks and mutual funds. In Nigeria however, with the ever increasing yield on fixed income securities, achieving this objective may not be too difficult especially for institutional and high net worth investors that can afford to buy the FGN and State Government bonds and other blue chip company stocks. However, for the retail investors, that objective can still be achieved by investing in dividend paying mutual funds.
Investing in dividend paying stocks or mutual funds not only help with the achievement of the investment objective of constant income, it also help when volatility is high in that the dividends help to absorb the blow or shock of falling prices. For those who are retired or nearing retirement, dividend paying stocks and mutual funds, are a way to go as they help the retiree to sit back and enjoy the fruit of his or her labor. Someone may have been asking or wondering if Nigerian mutual funds pay dividends. The answer is an emphatic yes but due to dearth of information, many do not know which mutual funds pay dividends.
According to available information, about 5 mutual funds have either declared or paid dividends in 2015 for 2014 FYE. Among those, FBN Capital Asset management funds take the lead as the funds with the highest dividend yield. FBN Heritage Fund and FBN Fixed Income Fund declared dividends of N11 and N89.94 in May 2015. This represents dividend yield of 22.71% and 18.85% respectively. UPDC REIT comes next with a dividend yield of 6.2% having declared a dividend of N0.31. Vetiva 30 ETF and Lotus Halal ETF both declared a dividend of N0.1 each while Stanbic IBTC Guarantee fund paid dividend of N1.00 during the first quarter of 2015.
For those looking for yield, FBN Heritage and Fixed income funds may be worth looking into. In 2014, FBN Fixed income fund paid a dividend of N40.94 representing a dividend yield of 3.74%. This year, the dividend amount tend to have more than doubled.
Understanding Dividend Yield
A dividend yield is a statistic that tells an investor how much income he or she receives in relation to the price of the stock or mutual fund. It is always good to understand that dividends declared or paid when the corresponding fund's price is falling will result in high dividend yield which in turn may give a deceptive buy indication. While paying attention to dividend yield, investors should also consider dividend growth rate in making investment decisions. Dividend growth rate is the average rate of growth a stock’s dividend has experienced for a specific period of time. For example, by going from N40.93 to N89.94, the dividend has grown by 119%. The dividend growth rate is not a function of the price of the asset and therefore may be more useful in assessing a stock or fund.