Investors in consumer goods firms shouldn’t fret as the companies are set to maintain dividend payment momentum even as tough and unpredictable environment undermined profit while share prices were beaten down last year.
Eight largest consumer good firms quoted on the floor of the bourse paid N78.33 billion for the year financial year ended December 2017.
Analysts are of the view that payout ratio will not reduce even though some have embarked on aggressive expansion plans with a view to increasing the share of the market.
“It was a tough year for firms but not significant as to force them to reduce payout. I don’t think the numbers are that bad,” said Christian Orajekwe, equity research analyst at Cordros Capital.
“In 2016 we saw a reduction in payout ratio of Unilever but 2018 is not as tough for them like the recession period. This is because a lot them have reduced dollar denominated debts and foreign exchange losses,” said Orajekwe.
Nigerian Breweries, with a track record of 100 percent payout, paid total dividend of N29.89 billion for 2017 financial year. Nestle Nigeria Plc paid a final dividend of N21.79 billion for 2017 financial year.
Dangote Sugar Refinery paid total dividend of N15 billion for 2017 financial year.
Dwindling purchasing power among consumers, insecurity in the northern part of the country, decrepit infrastructure, high incidence of smuggling, counterfeiting locally manufactured products, and the menacing grid lock at the Apapa Ports have made it difficult for manufacturers to bolster margins.
Nigeria’s economy remains fragile as GDP grew by 1.80 percent in the third quarter of 2018, a downturn from 1.95 percent and 2.10 percent in the first quarter and fourth quarter of 2018 and 2017.
While inflation for month of November 2018 is in double digits, below the central bank’s target range of 6 percent and 9 percent.
“Some of the firms that are still investing heavily on new projects will maintain a 50 percent and 60 percent pay-out. For instance Dangote Sugar is investing in the Sugar for Nigeria Master Plan,” said Ifedayo Olowoporoku, consumer goods analysts with Vetiva Capital Management Ltd.
Nacon Allied’s and Danogte Sugar’s dividend yields of 8.33 percent and 12 percent are the highest among peers. This is because their stocks are trading below intrinsic value, which makes it very attractive to investors. Nascon and Dangote Sugar are trading at a price to earnings ratio of 9.39 times and 5.83 times, which is lower than the consumer goods index P/E ratio of 19.58 times.
Analysts at Vetiva Capital Management Ltd see Investors remaining wary of downside factors affecting Nigerian Breweries and Guinness in 2019; albeit they do not expect the stocks, particularly Nigeria Breweries, to fall below multi-year lows seen in 2018.
“Taking from our 2.5% point estimate return for the NSE in 2019, we predict a -5% to 0% return for the CNS sector. The Consumer Goods sector currently trades at a P/E of 19.58 (ASI: 9.27x) with dividend yield of 3.5% (ASI: 5.4%),” said at Vetiva.
BALA AUGIE
