As investors flock to the stock market for alternative high-yield opportunities, here is one stock you should buy as much as you can next week on a pull-back. The reason I am so convinced this stock will do well is that it actually meets the elusive combination of sustainable inflation-beating dividend yield of 14%+ with more room to appreciation when it finds support at one of its key moving averages.
As a growth investor, one might wonder if the rally in NSE all-share index has come to an end following 2-days of continuous sell-off with 0.46% decline on Friday.
To answer this question, let’s look at the general market index on a monthly so we can get a clear picture of where the index is going, up or down.
The NSE all-share closed Friday’s trading session at 28,415.31 basis point and as you can see on the chart above, MACD is still on very fresh bullish crossover which means, the short term run isn’t over – we may see another rally after a healthy correction.
As what point are we expecting the index to resume its uptrend? I can’t say precisely but with the help of Fibonacci retracement, you can follow the index and mark possible region the index may find support:
The possible region you should watch out for are: 23.6% (28,251), 38.2% (27,729), 50% (27,306), 61.8% (26,884), or 78.6% (26, 282).
Like I shared, the market is still very bullish which is supported by the fact that there is no fixed income instrument that offers interest returns that are in any way close the highest yielding dividend stocks. The CBN’s monetary policies and decision on MPR imply that the low rates will remain for a longer period.
As we look forward to the next bull run before the year runs out, one of the highest yielding stocks I’d advise you buy more at a lower price next week is UBA. The banking stock currently offers a dividend yield of 14.26% but you know what, you may likely pocket more returns if you buy more units at lower prices.
While its H1, 2020 numbers didn’t show significant improvement over H1, 2019, the fact that the bank is still very much profitable with retained earning in the reporting period already up by 13.3% suggest that shareholders should expect a dividend announcement. Besides, UBA is among the companies that have consistently paid shareholders in the last 8 years.
With a successive rally of 11.48% in the last 30days to a key resistance region of N7.19-N7.2, it’s normal for the stock to pull back on profit taking. UBA is up by 6.25% and 37% in the last 3 and 6-months so its obvious that sentiments is positive.
As the market goes through correction next week, I’d advise you buy more of UBA at any prices between its 50% fibonacci retracement level of N6.6 or 60% level of N6.4. I consider this region a good bargain for dividend seekers and growth investors.
The next key target to watch if the stock clears the N7.19-N7.2 resistance is N7.49-8 which could pave way for N10. When you discount the bank’s EPS (TTM) of 2.15 by a risk-adjusted rate of 20%, the stock is fairly rice at N10.75.
After the MACD confirmed a potential bearish trend in July 2018, UBA stock dropped from N10.15 to a 4-year low of N4 as marked from Point B.
You will notice that the same MACD just turned bullish (Point A) on the monthly chart – expect a stronger run in coming months.
From my analysis, UBA has 47% upside potential from today’s market price of N6.8. The question is would you rather go for a guaranteed dividend yield of 14% or opt for a 50-50 chance of earning 47% return via capital appreciation?
Disclaimer: I said 50-50 because no one can accurately predict the exact top of the market so do your due diligence.