A useful investment tip for the financial space in Nigeria.

1. A simple investment strategy with the potential for a
total return of 40%!
My early morning running routine sometimes throw up actionable insights, which I then develop further or
otherwise incorporate into my wealth management activities. A recent ‘run’ and review of our ‘securities
watch list’ brought about the idea for this topic, which I will now illustrate.
Before I do so, a few provisos on the implementation:
 It’s dependent on temporal market circumstances: Low stock price to earnings (P/E) ratio and
high-interest rate environment
 It’s a newly created, stand-alone portfolio
 It’s short-term, one-off and closed out at the end of the tenor
 Tenor: 12-18 months
 It’s not a new strategy or an original idea
 This is solely for illustration, actual implementation will differ, e.g. it will involve buying shares of
more than one company and more than one type of interest-paying investments
 There are a variety of subtle tweaks to the implementation that may produce a similar total
return
I have broken the strategy into three phases which I call ‘dividend hunting’, ‘hope for price gain’ and
‘accepting the risk-free offer’.

2. DIVIDEND HUNTING
This stage begins with a review of listed companies (or at least those that interest you) based on their last
quarter result (Q3 2016) and I extrapolate their expected full year result (FY 2016). And I then use
these projected full-year earnings along with the historical dividend payout ratios to project the expected
dividend payment to be made by each firm. After doing this exercise, I came up with quite a few stocks
that, in my opinion, can provide a 12%+ dividend yield.
However, for my illustration, I have picked Zenith Bank (Ticker: ZENITHBANK: NL) from my list. I am
projecting that this bank will pay a dividend of N2.10, which is a dividend yield of 13.3%. I then spend N1,
000, 000 to buy 61, 995 units at N15.84/share on 19/01/2017. (My illustration uses a trading commission
of 1.8% for transactions in shares, a 10% withholding tax on dividends and interest incomes).
Now fast forward to mid-April 2017 and the bank pays (if my review exercise stacks up) N2.10/share as
dividend and I receive N117, 171. My hunt for dividend yield materialises at this point! But in pursuit of
further gains, I promptly invest this amount in a 91-day Treasury bill at 13% (last stop rate for 91-day
NTB was actually 13.9%).
HOPE FOR CAPITAL GAINS
With the bank having met my initial earnings and dividends payment expectation. I now anticipate that the
good performance will continue over the course of the rest of the year and translate into a higher stock
price I can sell the shares for. I have set a target exit price of N18 at which to sell and I hope to do so
before August 2017.
My optimism is not hanging on a wing and a prayer. It is based on the knowledge that institutional investors
typically reinvest their dividends and the demand that this generates is price positive. Also, pension fund
administrators, pfas, are bound by the regulations guiding their activities to invest a certain portion of
workers’ retirement contributions in shares, further providing a demand and a potential price increase. A
good number of firms under these two groups of investors certainly own shares in the bank. Their
continued interest and activities should provide a boost for the price of the stock. In addition, Q1 and Q2
2017 results would also be released and if the bank delivers a good result and announces an interim
dividends payment, this will also tend to drive up demand for and the price of the shares.
It is now late-July and I sell down my entire holding at N18.35 for N1, 117, 131. My maturing Treasury bill
also produces N130, 880 (after withholding tax deductions but ignoring transaction costs) to give a total
cash amount of N1, 248, 011 after trading costs and withholding tax. This completes the second stage of
my plan and my hope for price gains has materialised!
ACCEPTING THE RISK-FREE OFFER
The last leg of my journey only requires that I buy a 182-day Treasury bill at a stop rate of 17% (last stop
rate for 182-day NTB was 17.3%). At maturity, I will get N1, 438, 957 for my troubles!
CONCLUSION
A lot can certainly go wrong after I buy the shares. On one hand, the return from the equity end of the
strategy, which provided more than half (23.4%) of the total return of 43.8%, is not guaranteed. The
initial dividend yield I sort may not materialise. The bank may not deliver the performance that will drive
up demand for its shares and its price. And even if it does, a negative global and/or national economic
event can depress the stock price below what may be considered its ‘real’ value. I have to remain vigilant
and continually review the financial environment to gauge my chances of meeting my expectations and be
ready to adjust when required.

3. On the other hand, the return from buying Treasury bill (20.4%) is more or less guaranteed. So in all, I
certainly consider this an actionable strategy over the next 12 to 18 months!
Adefowowe Adebamowo is the Chief Executive Officer at Ifriqiya Capital, an investment banking services
firm in Nigeria. For more information visit www.ifriqiyacapital.com and you can reach him by email on
aadebamowo@ifriqiyacapital.com.
Disclosures:
This piece is for informational purposes only. It is not a solicitation to buy or sell the securities mentioned.
Investment in shares involves the risk of loss of principal and may not be suitable for some individuals.
Projections and expectations may not be met. Consult a financial advisor or any other investment
professional for guidance.