Dividend Yield or capital growth on the Nairobi Stock Exchange (NSE)
This article looks at the Nairobi Stock Exchange (NSE) to identify where a number of strategies will be to produce win shares on a consistent basis. The article contains a study where six dates are considered speculative investments between 2008 and 2010, and the shares listed on the basis of three strategies for four years and two eight-month periods prior to the time of investment.
Stocks
are picked based on their performance in investment periods before the time of investment. Strategies include the dividend strategy, a strategy of capital growth and total return (hybrid) strategy to identify which of these offer the greatest number of winners in the period following the date of investment.
Investment
dates in question are:
January 17 November 20 082 200 814 200 920 20 March 109 May 200 929 July September 2010
simple calculation and because of the lack of adequate data on dividends paid to some of the small caps. shares, the dividend yield is considered as a proxy for dividend for the period to arrive at total return. It is quite conceivable that a high return for a share can coexist with a high yield and vice versa.
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strategy high yield
A number of shares have been selected on the basis of a high dividend return on the investment date . High dividend yield stocks are those with the return of over 4 percent, and that showed that constant over the six periods. Shares that have been consistently high (at least five of the six periods), the East African Breweries Ltd, British American Tobacco Ltd.., Kenya Commercial Bank Ltd. Kenya Oil Ltd Total Kenya Ltd Keng Ltd. and the stocks of energy, especially posted impressive returns over the six periods of average and more than 30 percent of Kenya Oil Ltd and more than 8 percent for Total Kenya Ltd. British American Tobacco Kenya Ltd has always provided in excess of 6 percent for the period.
However, stock selection based on a high yield is not proven to be a winning formula. Only East African Breweries Ltd and British American Tobacco Kenya Ltd was able to surpass (in terms of capital growth) for at least five of the six periods from the date of investment. Total Kenya Ltd Keng Ltd and was particularly poor management to exceed that in two of the six periods from the date of investment. This means that the six tracks included on the basis of a high dividend yield stocks only two were able to consistently outperform ie at least five of the six periods is considered a success rate of 33 percent. On the other side, but managed a number of marginal (2 percent or less) shares at Athi River Mining Ltd Diamond Trust Bank Kenya Ltd Equity Bank Ltd, and to excel in at least four of the six periods. Picking shares on the basis of high returns does not seem to be a Perquis to outperform the market. However, none of the non-dividend shares are able to outperform in more than three of the six periods after the investment dates most of them succeeded in becoming the winners in six. This suggests that the prospect of receiving the dividend has a positive impact on stock prices allow dividend-paying stocks that make up most of the winners. The dividend, seems to be a necessary but not sufficient for excess returns.
Capital growth strategy
Shares
that was better than on the basis of capital growth before the date of investment were examined as part of the second strategy to determine whether these higher returns than those on alternative strategies. Most stocks, however, was not consistently outperform the basis of capital appreciation over the six periods, provided that a strategy of stock selection on this basis a difficult problem to implement. Most stocks better than on the basis of capital growth on only three times or less over the six periods. Only Athi River Mining Ltd consistently exceeded in five of six periods, while Total Kenya Ltd and Eagads Ltd. upgraded four of the six periods. In investment periods after the date of investment concerns, Athi River Mining Ltd. upgraded all six periods in the form of capital growth, surpassed Total Kenya Ltd in only two of six periods while Eagads Ltd. better than only three out of six periods.
A strategy based on the selection of stocks that had shown the greatest appreciation in the run from the date of investment has not provided the winners of the subsequent offering period. Three shares listed on the basis of capital appreciation, was one stock in a position to excel in at least five of six periods after the date of placement of a success rate of 33 percent. was, however, shares that had not exceeded on the basis of capital growth during the period of one year leads to the actual investment date (and thus excluded from a strategy based on stock selection based on their performance in the capital city) has managed to outperform the periods after the date of investment. These stocks included Williamson Tea Kenya Ltd Diamond Trust Bank Kenya Ltd, Jubilee Insurance Co.. Ltd. Ltd. Ltd. Scan Group and TPS Serena., Who, despite the weak showing appreciation in the run dates of the investment in question, managed to surpass in five of six periods thereafter. East African Breweries Ltd. managed to surpass the six periods, despite showing poor performance in the capital leading to each of the dates of the investment considered. above shows that the growth of capital as a strategy to invest in the winners would not have been able to do so. Some of the stocks performance in terms of capital growth in the period preceding the period of investment (such as Total Kenya Ltd and Eagads Ltd) Directed miserably in the later periods in the form of capital growth. As discussed later, past winners tend to be tomorrow’s losers and vice versa.
Total Return (hybrid) strategy
A strategy to pick stocks based on total returns for periods prior to placement dates identified Athi River Mining Ltd and Standard Chartered Bank Ltd., in particular as potential winners who surpassed in terms of total growth for all six periods. Other stocks that have been selected on the basis of this strategy consisted of East African Breweries Ltd City Trust Ltd Total Kenya Ltd Ltd Ltd Eagads scan group and all over the place in terms of total return in four of six periods.
After the date of the investment involved, upgraded Athi River Mining Ltd and East African Breweries Ltd all six periods, while the scan Group Ltd. and Standard Chartered Bank Ltd. better than in periods of four and five, respectively, the form of capital growth in the years after the date for investment. This means that the seven tracks that were identified by a strategy based on the total return to pick winners, four shares managed to outperform in the years after the date of investment a success rate of 57 percent. So, would a strategy based on identifying stocks that were better than the total return basis and including them in the portfolio to the investor has a higher incidence of winners in subsequent periods Investment (next year) in terms of stock performance beat Alternative strategies based on high yield and capital growth. Although a number of individual actions that have been excluded according to these three strategies is the dividend yield, capital growth and total return actually outperform in periods following six dates of the current investment Kakuzu-Ltd. Williamson Tea Kenya Ltd Bamburi Cement Ltd, Crown Berger (K) Ltd Equity Bank Ltd, Jubilee Insurance Co.. Ltd and TPS (Serena) Ltd .- It is difficult to identify a strategy that would have taken these stocks ex ante to deliver a winning portfolio.
Analysis
Total Return
Dividend Yield
represents the return to owning a share of the market action. But this is not the only return made by the holding of shares as capital growth must also be taken into account. So the investor should consider the total return to assess the extent of their investment in shares. The total return is what really adds and links to investors over time.
To identify dividend-paying stocks that will perform well over time total of the investor must consider the total stock of long-term return averages. In addition, the investor will not receive a return must be sought in the growth and vice versa. When the dividend is also increasing and this has a positive impact on the share price gives the investor a return further capital growth. This is the ideal combination of a decent performance with both higher dividends and share price up. This will maximize the total return for the investor. Total return (hybrid) strategy considered above have successfully identified a number of shares that have been able to outperform in periods prior dates relevant investment information Athi River Mining Ltd. and Standard Chartered Bank Ltd. .. Capital gains over time is correlated with
dividends and correlated with the income that pays dividends. So it’s not just a question of capital growth, is also a question of income from holding of shares and the growth of income over time. Despite the need for dividend growth, however, has a low yield Athi River Mining Ltd Ltd City Trust Ltd Eagads and was still able to outperform the total return basis with the approach of the investment respective dates as a victory into the strategy of the portfolio total return.
The age profile and risk
How do investors choose their mix of performance and growth in a portfolio of a decent total return will be guided by their age profile and thus risk appetite. If the investor is relatively young with a long period of saving and investment before it will find the ideal growth much more in return for a lower yield.
For those nearing retirement to investors a total return strategy that seeks more high-yield stocks and less capital growth is the key. However, this type of investor has to take into account shares that start with a relatively low yield, but continue to grow their dividends on an annual basis and thus reveal a much higher return in the years to come. Compounding nature of growth (higher returns than the dividend increase) in dividends should see the controls of a living wage in retirement. In addition, impending retirement, it is important to own shares in a company with a consistent history of paying dividends (for example, Kenya Commercial Bank Ltd. Kenya Oil Ltd, East African Breweries Ltd British American Tobacco Kenya Ltd and Ken Ltd) . For him, a total return strategy that focuses more on the dividend element brings with it also reduces the risk of capital depreciation and should be. This means that since the dividend is more or less given for this job in a safe form of income, although the stock would suffer a loss in value. Utilities, especially given its large cash holdings may well be able to maintain dividends constant, even in the face of declining value of the shares and would be an interesting area to keep the stock for investors approaching retirement age. During the bear markets, to identify stock dividend is a better strategy than the market is struggling with a negative capital growth. But the improvement in which crops are driven by stock prices fall and not increase the yield will be the key difference between stocks that are producing better as dividend growth (eg, Bamburi Cement Ltd. Between 2008 and 2011) and those where the share price falls (eg Mumia Sugar Ltd. between 2008 and 2011). If the bear market is combined with low interest rates, yield results that can now offer a decent income for investors as bond yields (which runs in tandem with interest effect) will also be low. This strategy can be even more speed, buyer or investor to continue to own shares in a company to pay a dividend and therefore provides a constant return to the sea predictable.
macroeconomic environment
Inflation
an inflationary environment will require that the total return to investors for the loss of purchasing power, WV. Management of inflationary environment may require a rebalancing of the portfolio away from cash, no indexed debt and equity to asset classes that have a value more such products difficult time as gold, currency Reference and commodity currencies. In a deflationary environment the opposite is true. But even in a depressed economy to investing in companies that pay dividends for a dividend policy easy to follow and / or repurchase of shares may give some real return achieved.
In situations where governments are tempted to use to avoid inflation and budget deficit (high debt) of inflation may persist in the medium and long term. This can threaten the real value of cash and bonds and make the growth potential of the share capital of the sea attractive.
owning shares in sectors such as utilities and other industries, such as income (and by extension of free surplus) is linked to inflation may serve as an almost perfect coverage since inflation goes up, so do utility bills, investors will get an automatic pass -through of inflation in revenues and profits. Accordingly, dividend increases with inflation. Interest rates
setting low interest rates to manage a deflationary environment can kick start a movement away from cash savings shares and thereby increase the activity of market actions. This can lead to higher stock prices and an increase in capital growth
Conversely, does the interest rate on the rise (for example, to manage inflation) increased cost of borrowing for consumers and businesses, which in turn affects the ability of businesses to grow and develop themselves. It hurts profits by reducing the opportunity for profit. So as interest rates rise bond investors demand a higher coupon in order to convince them to buy all new bond issues and make bonds attractive alternative Wed cash for shares. Reduced demand for shares may reduce their prices.
In addition, higher interest rates lead to increases in interest rates and equity income at the same time as investors seek higher returns in cash. As the prices of stocks and bonds will fall to raise its short-term returns. An interest rate increase also suggests that the investor must choose a high-yield shares comparable to those offered by bonds. The advantage of this is that these stocks tend to have more capital appreciation potential as an alternative to bonds and bond funds. volatility risk
volatility risk means the possibility of asset prices fall under unfavorable market conditions. Small caps are particularly vulnerable and significant losses in a short period of time is usually common, regardless leader qualified investor or fund. Volatility can affect the portfolios of a number of ways. After the market turmoil as pensioners or those who pay the pension funds see their retirement savings drop significantly. While the recovery of the futures market, the Portfolios retirees have less time to recover before they are required to support the lifestyle. Impairment of equity portfolios and unintentionally reduced the amount paid out as income (dividends) or a surplus (profit). However, the most insidious of the volatility of its impact on investor behavior. As markets gyrate emotions can get the best investors and encourage them to make it move-intuitive to the purchase and sale of high-low. The same also happens in bull markets, where companies and funds for impressive results and investors in the job with enthusiasm. These funds can, however, take chances and be oversized when markets and prices correct investors jumping ship can take a downward spiral that reduces the volatility in the market. Thus, a herd mentality affect portfolios and investors need to keep the nerves, even in apparently traitors. After the global financial crisis in 2008/09, as the herd mentality that included the participation of large sell-off on the NSE have seen a few blue-chip companies lost more than half of their values. Notables were Equity Bank Ltd unga Group Ltd., East African Cables Ltd CMC Holdings Ltd and despite the relatively stable underlying performance in the period.
To protect against such behavior, the investor should have a clear understanding of their own ability to withstand fluctuations. Connecting an honest assessment of their risk capacity allows the investor to invest wisely. For the conservative investor, to avoid volatile sectors like technology, media and advertising, Agriculture and Transport potentially be recommended along with building a portfolio of stocks uncorrelated. The need to reduce volatility is crucial closest investor receives for its investment objective (s). This may mean a preference for more stable investments represented by obligations (bonds, especially investment grade government) and cash deposits, keep in mind, but the level of inflation, as this can erode the returns that can be achieved. In summary the investor better fill the portfolio with dividend-paying stocks rather than non-dividend paying. The ability of the former to pay a dividend gives a more stable income while providing a cushion against capital losses. But the biggest things that dividend-paying shares volatility profile is significantly higher than those obligations. When an investor is looking for a regular income and capital stability, the bonds form the larger part of a well diversified portfolio, as these help to maximize total return optimal especially in portfolios of retirees. Tax considerations
conventional financial planning wisdom says that the best time to rebalance a portfolio of tax season, with an eye toward reaping for any damages incurred during a market downturn to offset capital gains elsewhere in a portfolio.
The two components of total return – dividends and capital gains – are two entirely different tax treatments. Dividends are taxable immediately, while the tax on capital gains not due until the stock is sold, creating a tax deferral that aid to the accumulation of wealth. The suspension of the tax on capital gains inKenyafor the past two decades has meant that investors were not subject to tax on gain realized on the acquisition and subsequent transfer of shares or bonds. However, they are taxable when they invested in a mutual fund taxable profits. And stocks with low dividend yields are particularly attractive for higher rate taxpayers who are able to combine a low dividend and therefore relatively lower tax burden with a gain substantial tax-free. The choice between dividends and the strategy and the strategy for capital growth, however, treatment of the investor’s personal income is an important factor. For investors with low income is not much difference, from a fiscal point of view, will be achieved by adopting one of the strategies. But for the highest income in the income, the significant savings achieved by opting for a strategy for capital growth as opposed to a dividend strategy. In addition, rather than paying their salaries directly to shareholders through dividends, some companies choose profits reinvested in their companies return cash to shareholders with less direct means, such as repurchase shares. This has tax benefits that shareholders are actually getting a profit through these programs back program back. As seen above, investors in the country is exempt from tax on capital gains. But inKenya, prohibits corporate buybacks by companies.
Maintain a long-term
As portfolio manager, he is a big mistake to focus too much on performance short term, should more emphasis be longer-term numbers and letter each farm is back in the last three and five years in relation to other offerings in the same category. In this case, a key factor in a comparison of the performance of a portfolio built on a total return basis and built on a different basis (for example, a value strategy).
Portfolio Manager will also take note of absolute returns to be especially aware of the security operations that have contributed most – or hurt most – the bottom line in its portfolio. Lawsuits against the performance can be an indication that something is wrong with keeping although it can also provide an opportunity to buy more than to keep on the cheap and expect to take advantage of mean reversion over time. Some financial stocks, in light of the global financial crisis over the last three years or so, continued to worse, and continue to offer attractive valuations, including Barclays Bank Ltd, National Bank of Kenya Ltd, CFC Stanbic Ltd
portfolio manager overriding principle should be be to adjust their asset allocation to match the investment horizon of investors over time rather than trying to time the market ups and downs. One of the easiest traps for investors is to fall in buying and selling at the wrong time. Human nature would have investors buying when the market conditions seem favorable and sell when they worsen, but such human intuition can seriously affect the overall performance.
After bear markets, such as loss
recent global financial crisis of capital can be a major concern for investors. But these losses are primarily paper and not a permanent capital loss unless the stock is liquidated. This means that the long-term investors need to stay focused on the long term, even when the markets take a cloth. Investors who have the discipline to stick to their plans for long-term investment will reap benefits that materialize in the full market cycle, ie the boom to bust to boom on. Most shares on the NSE has managed to recover from its March / April 2009 with low, then any shares MAIN Athi River Mining Ltd Mumia Sugar Company Ltd Kenya Airways Ltd and growing over 100 percent from March / April 2009 and July 2011 and some as low Kakuzu Ltd handle a 200 + page per growth period.
Even in bear markets, the asset allocation strategy (consolidation) essential and will lead to increased exposure to cash, bonds (especially long-dated government bonds), the gold and hard as any other shelters. The proposal here is that an inverted yield curve (due to depressed market conditions) in the short-term trading securities (stocks) with a higher risk and investors prefer long-term exposure.
Diversification
When the investor decides to adopt either a dividend strategy, strategy, capital growth or a total return strategy, it will have to be aware of dangers to nestle their assets in one investment style. It may be necessary to take note of the weight on the market sector (sectors represented in the sea benchmark) and those identified by the strategy should not be far from it. Moreover, it will be necessary to ensure that the portfolio, even with their investment strategy adopted is disproportionately biased in favor of one or two portfolios of individual stocks, sectors or industries. Is often the case that if a company in a sector is in trouble and need to cut dividends, their peers are not far behind. At the same time, in fact, some investments and asset classes do well, while others will struggle. Winning investment in a given year are quite likely to be losers in the next year. This makes it necessary to diversify across sectors, industries, and also the asset class.
The old adage to diversify, spreading, spreading, and is true, is the income resulting from growth of capital, or a hybrid strategy. The benefits of diversification will of course be better achieved by opting for a dividend fund focused rather than selecting individual companies that pay dividends, although this will come at an additional cost in management and other fees
active management of the fund and expenses
For those who invest in an actively managed funds, cost is always an important factor when shopping for an investment vehicle.
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