Why Investors Are Looking For Insurance And Dumping Sugar

0
1566

Continental Re-Insurance Plc has become the toast of investors on the Nigerian Stock Exchange (NSE) on Monday after it announced its intention to pay a cash dividend of 11 kobo per share.

This is in respect of its financial year ended December 2013 in which the company announced premium income of N15 billion and profit after tax of N1.75 billion.

The company’s share price immediately moved up 5 kobo after the announcement to close at N1.14 kobo from the day’s opening share price of N1.09 kobo.

At the close of trading on Monday, investors seeking to buy the shares of the company could not get enough to buy as there was an outstanding demand for 25 million shares which could not be satisfied according to stock brokers on the floors of the NSE.

The expectation is that the company’s share price will continue to rise this week because of the high demand for the shares.

The demand is driven by the high returns offered by the company’s dividend pay out. 11 kobo cash dividend translates to an average return of 9.65% for investors who are able to buy the company’s shares at the closing price of N1.14 kobo on Monday. This is better than the average return of 2% to 5% offered by many other listed companies on the exchange currently.

For example, 7 UP Nigeria Plc another listed company with a closing share price of N102.53 on Monday, announced plans to pay a cash dividend of N2.50 kobo. This is just a return of 2.43%, less than half of the returns offered by Continental Insurance Plc.

To put the returns in proper perspective, a shareholder with N100,000.00 worth of shares in Continental Insurance will go home with N9,650 as cash dividend while the another investor with N100,000 worth of shares of 7 Up will be going home with just N2,430 cash dividend.

This is why some stockbrokers think investors are going to dump the shares of 7 Up Plc in the next few days because of the highly unattractive cash dividend announced.   This will see the company’s share price drop from its current price level to a lower level that reflects the dividend announced.