Understanding dividends

A dividend is the company handing part of its profit back to owners, in cash, per share. Nigerian companies typically pay a final dividend after year-end results, and some add an interim dividend mid-year. The final one needs shareholder approval at the AGM, which is why declaration and payment can sit months apart.

Declaration date: the company announces the amount. Qualification date: the company checks its register; whoever holds settled shares that day gets paid. Ex-dividend date: the first day a buyer no longer qualifies. Payment date: cash lands.

Because NGX trades settle T+3, the real deadline is three working days before qualification. Buy later than that and your trade settles after the register closes: you own the share, the seller keeps the dividend.

Every figure a company declares is gross. Withholding tax of 10% comes off at source, so a declared ₦2.00 per share pays ₦1.80 into your account. On 5,000 shares that is ₦9,000, not ₦10,000.

For retail investors the WHT is final: nothing more to file, nothing to reclaim. When you compare a dividend stock against a T-bill (whose interest is exempt for individuals), compare net to net or the stock flatters itself.

Trailing yield divides the last twelve months of dividends by today's price, so it moves every day the price does. A stock at ₦20 paying ₦1.50 yields 7.5%; if the price halves, the same payout 'yields' 15% and looks irresistible.

That is usually the trap. A yield far above the market's is the market saying it expects the dividend to shrink. The question is never 'how high is the yield', it is 'will this payout survive'.

Three checks. Payout ratio: dividends as a share of profit; under 60% leaves room for a bad year, over 100% is borrowed time. Dividend cover: the same idea inverted; above 2x is comfortable. Dividend growth: a payout that compounded 10% a year for five years tells you management treats it as a commitment, not a gesture.

Register an e-dividend mandate with your registrar so payments hit your bank account directly. Nigeria has accumulated well over a hundred billion naira in unclaimed dividends, much of it from paper warrants posted to old addresses. Ten minutes of paperwork keeps you off that pile.

Price charts hide dividends entirely. A bank stock that went sideways for three years while paying 9% net annually outperformed plenty of stocks whose charts look better. Judge holdings on total return: price change plus income.

Reinvested dividends are also where compounding hides. ₦100,000 at a steady 8% net yield, reinvested, is about ₦147,000 of stock after five years before any price movement at all.