What You Should Know Before You Buy Companies’ Shares
If your share price has not gained 41% year to date, you might have invested wrongfully because the Nigerian Exchange is in its boom moment, and many companies have seen significant re-rating.
People buy shares randomly. Oftentimes, they don’t know anything about the shares they are buying other than the name of the CEO and the fact that they are banking, industrial or oil-linked stocks.
The question is why do you buy shares? If it’s not for you to create wealth, then bonds, Treasury bills and other money market placements will be just fine.
Once you choose stocks, you choose risks. Why? The company can go under, and if it’s not paying you a dividend and its share price isn’t rising, it means your portfolio will underperform. There are living dead stocks in the stock market – you must learn to identify them.
Investing in shares means you are looking for dividends – your right to share profit, which the board of directors can overrule. Your expectations when you buy a company’s shares include price appreciation, which depends on the fundamentals of the listed company’s stock you buy, its shareholders’ profit and the tone at the top.
While you’re seeking capital appreciation and dividends – you may see none, or either. Due to some companies’ payout policy, dividends come twice in a year. Another company may, however, prefer to pay shareholders once in a year.
As an investor, you have a choice to choose between the two companies, and here is what you need to know. Dividend payment is not entirely under your control. You have a choice to exit your positions if you are not happy about that.
The thing is you may lost by selling because market often price in dividend information into the stock. What attract buy is dividend, and how price of a company fluctuates. Stagnated share price means low trading activities – if you are looking for wealth, which should not be your choice.
You must know your shareholders’ profile and historical stock performance, including dividend payments track record. You don’t have to be part of shareholders list in some companies – especially those with significant governance risk and persistent board changes due to infighting among influential shareholders.
Companies with a series of regulatory interventions aren’t worth buying, because some hard decisions will be made that could affect market perception, and you lose earnings.
Savvy investors buy into companies that pay dividends and have potential for price gain. If you miss one, the other should be substantial to cover the gap for you. # What You Should Know Before You Buy Companies’ Shares Banks Placements with CBN Spike as Liquidity Surplus Hits N7trn
