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Dividend stocks can provide investors with steady and predictable income as well as serve as a buffer against market sell-offs in the long run. See my analysis on how Zenith bank, UCAP, and GTB can deliver a double-digit return on capital appreciation just by reinvesting your dividend year on year.
However, not all dividend stocks are great investments, some are just there to provide timely capital appreciation that can earn you more return than the yield itself. After all, why wait for a cash dividend on a stock that offers a 5% yield when the price action is pointing to a 20 – 30% move?
This is what I look for in dividend aristocrats. Investors tend to rush in on a company’s stock after they declare dividends but you can be smarter by being a contrarian investor – all you need to do is spot this type of opportunity ahead, take a position and sell before the closing date.
I had used this strategy several times and if you have been following my blog, you’d notice I adopted these tactics on UBA stock (see here) – Using the expected dividend per share as of then, the banking stock had a 14% yield stamp o. But guess what? my analysis revealed a significant upside potential of 47% from the same market price of N6.8, so what would you have done? I am sure you know what to do.
This is the best approach to trading dividend stock in an economy where the inflation rate is trending higher with no sign of slowing down.
At 17.93%, Nigeria’s inflation rate is currently making returns from the fixed income market worthless, so you must strive to shore up your equity portfolio by buying a collection of fundamentally sound stocks with a modest upside run, at least 15 – 20% compounded every 3 – 6 months is 44% per annum.
When I review the NSE market, I always try new approaches to discover opportunities (aside from the normal stock trading strategies). So today, I bring you one high-yielding dividend stock in the banking sector that may go up in the coming weeks or months as we look forward to their half-year result.
Watch Fidelity Bank Stock Right Now…
This is not the best stock in the banking sector but with yields that top other peers in the industry and a bullish chart setup, you can leverage the institutional buying interest on dividend-paying companies to reap more from capital appreciation.
Fundamentals
Nigeria banks have shown great resilience and demonstrated consistency in performance amidst the harsh economic climate, and strict policy directives from CBN. And one of the banks you should give kudos to is Fidelity.
In its latest Q1 2021 numbers, gross earnings increased marginally by 7.7% while profit before and after-tax grew by 53.9% and 63% respectively. This also rubbed off on its EPS, up by 65% to 33kobo (compared to 20kobo in Q1 2020).
Retained earnings increased from N43.6 billion in 2019 to N66.7 billion in FY 2020, now at N76.29 billion as of the end of Q1 2021.
As a dividend investor, you need to continually follow retained earnings to see if dividends will be paid or not. And positive growth is a good income for an income investor.
Technical Analysis
The banking stock currently sells for N2.33 with a dividend yield of 9.52%.
The stock is recovering from a critical level of N2.2 – N2.3 – a region that acted as resistance in January 2020 now turned support between December 2020, March 2021, and June 2021.
With price rejecting these key levels to the upside in the last 3 weeks and 50-day moving average strongly acting as confluence, I anticipate a further share price appreciation in coming weeks or month to N2.7 – 2.8 which is like 21.7% return from a market price of N2.33.
Would you rather own a banking stock for a 5.9% dividend or 21% capital appreciation, do the mathematics yourself.
So far, the banking stock is down by 9.63% compared to the NSE index negative return of 4.5% – this isn’t a momentum stock for aggressive traders but the fact that it commands a dividend yield of 9.52%, second after 12.1% offered by Zenith bank, is an attractive pointer to income investors who are mostly big money managers.
On the downside, a dip below the critical levels mentioned earlier (N2) means you can exit or cut your loss immediately as that’s a significant sign of trend reversal going forward.
