UT and Capital Bank takeover: A few clarifications for stakeholders

capital bank

The takeover of UT and Capital Bank has resulted in many raised questions by various stakeholders. On 14th August 2017, the Bank of Ghana revoked the licence of both UT Bank and Capital Bank Ltd. This followed a takeover of the two banks by GCB Bank Ltd. While related information continue to unfold, below is a summary of the few clarifications gathered so far.

Why the takeover

Both UT and Capital Banks had been declared insolvent by the Bank of Ghana (BOG). An institution is considered insolvent if its liabilities exceed its assets. In order to protect the banking system, in particular customers, the BOG decided to cancel their licenses. In accordance with the Banks and Specialised Deposit–Taking Institutions Act, 2016 (Act 930), the BOG was further mandated to possess and resolve the failing banks (UT and Capital Banks). There are many ways to resolve a failing bank in the banking industry. A common among them is the purchase and assumption (P&A) transaction used by the BOG.

With the purchase and assumption transaction, a healthy bank is appointed to take over the running of the unhealthy bank. In this case, the BOG settled on GCB bank to take over UT and Capital bank.

P&A transaction vs. stocks (shares) transaction

Purchase and assumption transaction differ from stocks transaction in the following ways. In purchase and assumption transaction, the buyer (in this case GCB bank) specifies which assets and liabilities it is willing to acquire, while leaving other liabilities behind. On the other hand, a stock purchase requires the buyer to purchase the company’s stocks which may come with unforeseen liabilities. GCB Bank therefore took over all deposits, selected assets and liabilities of the two banks. Liabilities that were not assumed by GCB Bank would be settled by the receiver.

The role of the receiver

The Bank of Ghana appointed PricewaterhouseCoopers (PWC) as the receiver to manage assets that were not taken over by GCB Bank. As a receiver, PWC would liquidate such assets and work with stakeholders to recover them. In other words, the role of PWC is to distribute all proceeds from liquidated assets to stakeholders such as creditors and shareholders after determining the validity of their claims. Distribution of proceeds would however be done according to the priority of claims which is in line with Banks and SDIs Act, 2016 (Act 930).

The fate of existing customers

According to the BOG, all depositors of UT and Capital Bank will have access to the full amount of their deposits. In addition, they will be able to access their accounts and continue banking transactions with GCB Bank Ltd. Customers of the two banks will henceforth become GCB Bank customers. They may continue banking at the old Capital Bank and UT Bank branch locations (which are now part of GCB Bank branches).

Fate of employees

Workers of UT and Capital Bank are to be put on probation for 6 months while the full transition of their companies into GCB Bank Ltd is completed. Completion of the transition is expected to take approximately six months. Following the transition, some workers are expected to be retained while others will be shown the exit. It is understood that senior level management of both banks, in particular those found guilty of causing the collapse of the two banks, will be the hardest hit.

Fate of shareholders

Shareholders of UT Bank Ltd. are required to patiently wait as the relevant transaction partners in the takeover process determine their fate. According to the Managing Director of the Ghana Stock Exchange (GSE), Mr. Kofi Yamoah, UT Bank shareholders may have to wait a little longer until their benefits or losses are determined. He explained further that this would depend on the available funds and direction from the receiver, PriceWaterHouse Coopers (PwC).

The GSE boss however clarified that the takeover of the assets of UT Bank does not necessarily translate into a shareholders swap.

This is not a transaction in shares so if you are a shareholder in UT, you do not necessarily translate into a shareholder of GCB. GCB has not bought the shares of UT Bank; they have taken over certain liabilities and assets of UT Bank.

Meanwhile the Bank of Ghana has indicated that the shareholders of Capital Bank will not be compensated.

Mr. Raymond Amanfu, the Head of Banking Supervision of the Bank of Ghana, added that discussions with the Ghana Stock Exchange in the coming days will determine the way forward for shareholders who bought shares of UT Bank from the stock market.

Could these listed companies be classified as foundational stocks?

If you have keenly been following the series on ‘get to know your mutual funds’, you would realise that in each post, the top 5 equity holdings of the fund’s portfolio are highlighted. Interestingly, of the few mutual funds covered so far, there appears to be much similarity in their various top 5 equity holdings. In other words, most of the mutual funds list similar companies as their top 5 equities. Out of curiosity, other mutual funds were also looked into to find out if the similarity trend would remain unchanged. To achieve this, some of the most recent annual reports (where available) of major mutual funds were examined. In all, 19 annual reports were studied, which covered 7 different mutual funds (both equity and balanced funds). The main purpose was to figure out if the topmost equities repeating more frequently in the various mutual funds could be considered as foundational stocks. In doing so, these stocks could become a sort of principal, key or foremost stock picks for investment portfolios. Many would agree, to some extent, that mutual funds are managed professionally by fund managers. Hence, following in the footsteps of these fund managers by replicating some of their top stock picks can be useful.

Why foundational stocks?

Investing in stocks is one of the most proven means to build wealth. However, picking the right stocks from the market can be challenging, especially for the novice investor. One requires a good portfolio mix comprising the right stocks in order to be successful. Just like building a house requires strong foundation to ensure its robustness, building wealth with stocks may equally require careful selection of stocks, in particular, starting with good foundational stocks. A poor foundation can cause your building to tremble or worse, topple down, so do poor foundational stocks can cause to your investment portfolio. Arguably, maintaining strong foundational stocks in your investment portfolio comes with some benefits such as good investment returns. Moreover, strong foundational stocks can somehow protect an investor from the impacts of market falls.

Summary procedure for selecting foundational stocks

As stated earlier, the top 5 equity holdings of seven (7) different mutual funds were compared. The mutual funds were Databank Epack, Databank Bfund, SAS Fortune Fund, HFC Equity trust, HFC Future Plan, CDH Balanced Fund and FirstBanc Heritage Fund. To ensure the use of up-to-date data for decision making, data covering the latest three years (2016, 2015 and 2014) were utilised. The topmost equities frequently appearing in the various mutual funds were preliminary grouped, followed by brief background study of their performances. The table below provides comparison between the top 5 equity holdings of the seven different mutual funds. For detailed (raw) data of the top equity holdings compilation, click on this link: Top five equity holdings of selected mutual funds.


Table 1: Comparison of top 5 equity holdings of selected mutual funds


Mutual fund

Top 5 Ghanaian equity holdings




6 *CDH Balanced Fund CAL, FML, GCB CAL, FML, GCB Fund was not yet established
7 FirstBanC Heritage Fund Annual report not available EGL, EGH, GCB, SCB, SOGEGH EGL, SOGEGH, GCB, TOTAL, GOIL

*CDH invested in only three (3) stocks.

Observations and analysis

From the table above, GCB bank Ltd. (GCB) occurs 18 times out of the 19 studied annual reports. This is followed by Standard Chartered Bank (GH) Ltd. (SCB) which can be counted 13 times out of the 19 annual reports. The rest, in descending order, are Fan Milk Limited (FML), 12 times; Enterprise Group Limited (EGL), 12 times; Ghana Oil Company Limited (GOIL), 10 times; Ecobank Ghana Limited (EGH), 8 times; Total Petroleum Ghana Limited (TOTAL), 7 times; Societe Generale Ghana Limited (SOGEGH), 3 times. CAL Bank Limited (CAL), 3 times; Ecobank Transnational Incorporated (ETI), 2 times; HFC Bank (Ghana) Limited (HFC), 2 times; Mega African Capital Limited (MAC), once.

In total, 12 different stocks could be found in the top five equity holdings of the mutual funds. However, considering the comparatively low occurrences of SOGEGH, CAL, ETI, HFC and MAC, they were delisted, leaving the rest of the seven stocks as the preliminary group for further studies.


Table 2: Preliminary group of foundational stocks

Stock Number of occurrences in top 5 holdings
GCB 18
SCB 13
FML 12
EGL 12

To study further on the above stocks, their historical performance trends were looked into. Simply, two main performance indices were examined- annual returns and dividend yields. It must be noted that stocks with fairly good returns can be indication of investors’ confidence in the companies. Furthermore, while dividend pay-outs provide regular income source, they also signal financial stability of companies. The latest 5-year annual returns and dividend yields of the stocks can be seen in the tables below.

Table 3: Latest 5-year performance results

Company Trading symbol Return, %
2012 2013 2014 2015 2016  Average
1 Enterprise Group Limited EGL 26.3 291.7 -6.9 37.1 0 69.6
2 Fan Milk Limited FML 50.4 86.5 -20.7 40 51.7 41.6
3 Ghana Oil Company Limited GOIL 93.8 43.5 19.1 33.3 -21.4 33.7
4 GCB Bank Limited GCB 13.5 131 13.4 -34.9 -6.1 23.4
5 Ecobank Ghana Limited EGH -6.3 87 35.5 7.6 -8.6 20
6 Standard Chartered Bank (GH) Ltd. SCB -74.7 29.9 36.2 -19.9 -25.2 -10.7
7 Total Petroleum Ghana Limited TOTAL 18.5 N/A 20.6 -16.4 -61.2 -9.6
GSE all-share-index 23.81 78.81 5.4 -11.77 -15.33 16.18


Table 4: Latest 5-year dividend yield

Company Trading symbol Dividend yield, %
2012 2013 2014 2015 2016 Average
1 Enterprise Group Limited EGL 3.33 0.00 1.43 1.04 2.1 1.58
2 Fan Milk Limited FML 1.13 0.00 1.71 0.00 1.4 0.85
3 Ghana Oil Company Limited GOIL 2.26 1.61 1.52 0.00 1.8 1.44
4 GCB Bank Limited GCB 3.33 2.94 3.96 8.44 8.7 5.47
5 Ecobank Ghana Limited EGH 8 5.18 5.66 11.27 12 8.42
6 Standard Chartered Bank (GH) Ltd. SCB 26.52 3.14 5.65 0.00 2.3 7.52
7 Total Petroleum Ghana Limited TOTAL 2.81 13.72 1.61 2.25 2.3 4.54

In terms of annual performance, with the exception of Standard Chartered Bank (SCB) and Total Petroleum Ghana Ltd. (TOTAL), the rest of the stocks show impressive positive results. Moreover, their average returns exceed that of the GSE (all-share index) in the same period. Enterprise group limited (EGL) beats the GSE index in 4 out of 5 years. Fan Milk and GCB similarly perform better than the market index in 4 out of 5 years while Ecobank and GOIL both exceed the index in 3 out of 5 years.

For dividend yields, Ecobank Ghana and Standard Chartered Bank lead with impressive average yields of 8.42% and 7.52% respectively.

It may also interest you that five of these stocks had even been commended in an earlier article recently. In the article by Kofi Busia Kyei (a financial analyst), EGL, EGH, FML, GOIL, and GCB were highlighted together with UNIL and BOPP as the few listed stocks that had offered great returns to investors in the past 10 years (Refer to the chart below).

foundational stocks _performance
Figure 1: 10-year return of selected stocks on the GSE Credit: Kofi Busia Kyei (a financial analyst)

Even though the performance trend of SCB doesn’t look so good, the high extent of its occurrence in the top five holdings of the various mutual funds may be due to positive future projections. The fund managers may have realised from their analysis, good earning or growth expectations of SCB, thus chasing its shares. Don’t forget that SCB is one of the few stocks that have recorded impressive returns in the current year so far. In fact, since the beginning of the year, its share price has appreciated by 115.52% as of 8th August 2017. Hence, considering it in our foundational stocks can be worth it. Unfortunately, because of the comparative low performance of TOTAL, in addition to its least number of occurrences in the top five holdings of the funds, delisting it from the group may be helpful for now. As a result, GCB, SCB, FML, EGL, GOIL and EGH can be finally listed as our proposed foundational stocks- six foundational stocks made up of three banking stocks, one insurance stock, one manufacturing stock and one petroleum stock (see Figure 2 below).

Foundational stocks
Figure 2: Proposed foundational stocks comprising six listed companies


The similarities between top 5 equity holdings of various mutual funds gave rise to this write-up. Through comparison and further background studies, six listed companies have been proposed as foundational stocks. These can be useful to investors in building their stock portfolios.

If you’re a new investor deciding on buying stocks from the exchange, you can think of starting with at least, one of these companies. Furthermore, investors who are already trading in stocks may also consider rebalancing their existing portfolio and perhaps buy more of these particular stocks.

Finally, if you’re yet to own shares of these stocks, my personal advice is to begin moderately with the ones that have already attained high appreciation in their share prices. For instance, the year-to-date returns of GOIL and SCB are currently 108.18% and 115.52% respectively, as of 8th August 2017. Even though they still have the potential to continue with their gains, the potential to fall is also inevitable due to the high prices already achieved.


Dividend yield of stocks on Ghana Stock Exchange

dividend yield ghana

Earlier this year, I wrote about dividend payments of selected stocks on the Ghana Stock Exchange. In the same post, I mentioned the importance of dividend yield as a comparison criterion of how well dividends are paid by different stocks. Generally, it would be deceptive to compare just the dividend figures of two different stocks and conclude that one stock pays better dividend than the other. This is mainly due to the varying differences in the prices of various stocks. Note that dividends are paid per each share owned by an investor. Thus, to earn a meaningful dividend income, one must own an appreciable number of stocks. Now, imagine purchasing equal number of stocks of two different companies such as GOIL and AGA (AngloGold Ashanti Limited). GOIL and AGA currently trade at about GH¢2 and GH¢37 per share respectively. Hence, to purchase 100 stocks each of GOIL and AGA, you would require at least GH¢200 and GH¢3700 respectively. In a way, you need to invest more in AGA in order to own equal number of stocks as GOIL. Let’s assume that GOIL and AGA decide to pay GH¢0.06 and GH¢0.12 respectively as dividends to their shareholders. Owning 100 stocks each of GOIL and AGA imply that you would earn GH¢6 and GH¢12 from GOIL and AGA respectively. Comparing these amounts at face value, one may be tempted to conclude that the AGA’s dividend is twice better than the GOIL’s dividend. Nevertheless, don’t forget that you invested only GH¢200 in GOIL to earn the dividend income of GH¢6 while you invested a whooping GH¢3700 in AGA to earn the GH¢12. As you can see, it is surely better to earn GH¢6 on a GH¢200 investment in comparison to earning GH¢12 on a GH¢3700 investment. To avoid such deceptive comparisons of dividend payments, dividend yield is rather used.

By definition, dividend yield is dividend expressed as a percentage of a stock price. That is, Dividend yield = (dividend per share/price per share) × 100. Due to the continuous fluctuation of stock prices, dividend yield is normally estimated in reference to a stock’s closing price for a particular period (such as a financial year). Also, dividend yields of a present financial year are usually calculated based on the dividend payments for the previous financial year. For instance, to estimate the dividend yield of GCB bank for the 2016 financial year, one can utilise GCB’s dividend payment for the 2015 financial year (which was GH¢0.33/share) and GCB stock’s closing price for the same period (GH¢3.79). Thus, dividend yield of GCB bank for 2016 financial year = (0.33/3.79) × 100 = 8.7%

A stock’s dividend yield may depend on many factors such as the business sector, cash flow as well as policy regarding dividend pay-outs. For example, it is believed that stable institutions such as the banking sector mostly pay good dividends on their stocks. In addition, factors such as a sharp decline or increase in stock prices can also have an impact on the dividend yield of stocks. Let’s assume that ‘company A’, whose stock price closes the year at GH¢5 per share, declare a dividend of GH¢0.3 per share. The dividend yield, in this case, would be 6%. Now, if the stock price of ‘company A’ declines from the GH¢5 to GH¢2 the following year while it maintains the same dividend of GH¢0.3 per share, the company’s dividend yield would definitely shoot up to 15%.

Dividend yields can be of many benefits. In a post about the performance of stocks on the GSE, I made mention that capital gains (owing to price appreciation of stocks) alone do not constitute the total performance of stocks. In fact, dividend yield plays an important role when it comes to the overall profit or yield of a stock. For example, if the price of a stock goes up by 20% in a particular year and the company further pays a dividend reflecting a yield of 5% for the same year, the overall return of the stock would be 25%.

In a period of falling markets, dividend yield remains one main consolation to investors. Using 2015 and 2016 as typical examples when the Ghana Stock Exchange made losses of -11.77% and -15.33% respectively, an investor who benefited from an average dividend yield of 4% could be better off than one who gained none or less dividend yield. Good dividend yields can be particularly useful for investors who seek to grow their investment and at the same time receive some regular income. It must however be stressed here that the payment of high dividends by companies may also come at a cost as it can deny the companies of potential reinvestments.

Historical dividend yields of listed companies

Even though historical data does not guarantee future prospects, one may still be able to guess the future dividend of a company based on the historical trend of the company’s dividend yield. This is even more useful for investors who seek high dividend income. In the table below, you will find the historical dividend yield of listed companies of the Ghana Stock Exchange.

Historical dividend yield of stocks on GSE
Trading symbol
Dividend yield, %
Average, %
2009 2010 2011 2012 2013 2014 2015 2016
1 AngloGold Ashanti Limited Depository shares AADS 0.81 1.00 2.51 0.00 0.00 0.00 0.72
2 Access Bank Ghana ABG *NA NA NA NA NA NA NA NA NA
3 African Champion Industries Limited ACI 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.00
4 Agricultural Development Bank ADB NA NA NA NA NA NA NA NA NA
5 AngloGold Ashanti Limited AGA 21.9 0.38 0.51 1.22 0.00 0.00 0.00 0.00 3.00
6 Aluworks Limited ALW 9.1 0.0 0.0 0.00 0.00 0.00 0.00 0.00 1.14
7 Ayrton Drugs Manufacturing Co. Ltd. AYRTN 0.8 1.31 0.0 0.69 0.00 0.00 0.00 0.00 0.35
8 Benso Oil Palm Plantation Limited BOPP 3.3 4.43 4.88 4.93 2.41 0.81 2.82 1.90 3.19
9 CAL Bank Limited CAL 7.3 1.6 4.64 6.84 3.57 5.25 5.3 9.7 5.53
10 Clydestone (Ghana) Limited CLYD 3.8 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.48
11 Camelot Ghana Limited CMLT 2.8 0.0 12.5 0.00 0.00 5 0.00 6.25 3.32
12 Cocoa Processing Company Limited CPC 1.3 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.16
13 Ecobank Ghana Limited EGH 5.7 0.0 6.27 8 5.18 5.66 11.27 12 6.76
14 Enterprise Group Limited EGL 0.7 5 1.58 3.33 0.00 1.43 1.04 2.1 1.90
15 Ecobank Transnational Incorporated ETI 21.3 2.82 0.0 2.25 0.00 0.00 0.00 2.8 3.65
16 Fan Milk Limited FML 1.0 4.08 0.84 1.13 0.00 1.71 0.00 1.4 1.27
17 GCB Bank Limited GCB 6.9 1.32 3.78 3.33 2.94 3.96 8.44 8.7 4.92
18 Guinness Ghana Breweries Limited GGBL 2.9 2.49 0.0 0.00 0.00 0.00 0.00 0.00 0.67
19 NewGold Issuer Limited GLD NA NA NA NA NA
20 Ghana Oil Company Limited GOIL 5.2 3.59 0.0 2.26 1.61 1.52 0.00 1.8 2.00
21 Golden Star Resources Limited GSR 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.00
22 Golden Web Limited GWEB 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.00
23 HFC Bank (Ghana) Limited HFC 1.6 3.41 3.56 4.89 0.00 2.33 6.67 7.06 3.69
24 Mega African Capital Limited MAC NA NA NA NA NA 0.00 0.83 1 0.61
25 Mechanical Lloyd Company Limited MLC 3.0 0.0 5.45 4 0.00 3.57 5.26 5.3 3.32
26 Produce Buying Company Limited PBC 0.8 3.52 4.89 5.18 7.33 8.8 12.57 6.16
27 Pioneer Kitchenware Limited PKL 0.0 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.00
28 PZ Cussons Ghana Limited PZC 1.59 2.09 2.83 7.53 6.65 0.30 3.50
29 Standard Chartered Bank (GH) Ltd. SCB 5.0 2.79 26.52 3.14 5.65 0.00 2.3 6.49
30 Standard Chartered Bank (GH) Ltd. (Prefrence shares) SCB PREF 10.00
31 SIC Insurance Company Limited SIC 5.9 4.43 5.21 0.00 0.00 0.00 0.00 2.22
32 Societe Generale Ghana Limited SOGEGH 10.0 7.45 8.33 5.33 6 Bonus shares 9.5 7.77
33 Starwin Products Limited SPL 2.0 0.0 28 0.00 0.00 0.00 0.00 4.29
34 Sam Woode Limited SWL 16.7 0.0 0 0.00 10 0.00 30.00 8.10
35 Trust Bank (Gambia) Limited TBL 2.6 0.0 4.29 0.00 0.91 5.88 9.6 3.33
36 Tullow Oil Plc TLW NA NA 0.0 0.39 0.00 0.00 0.46 0.46 0.22
37 Total Petroleum Ghana Limited TOTAL 3.5 3.4 2.81 13.72 1.61 2.3 4.56
38 Transol Solutions Ghana Limited TRANSOL 0.0 0.0 0.00 0.00 0.00 0.00 0.00 0.00
39 Unilever Ghana Limited UNIL 3.6 4.32 5.63 1.40 2.39 3.01 2.3 3.24
40 UT Bank Ghana Limited UTB 0.15 0.12 4.55 8 0.00 0.00 2.14

*NA: Not available, mainly due to company not listed by then.

Credit: GSE

 Dividend yield of stocks: Brief observations

From the above data, dividend yields of the financial sector appear to be higher than that of the other sectors. A few banks having a good average dividend yields for the period under study are CAL bank (5.53%), Ecobank Ghana (6.76%), GCB bank (4.92%), Standard Chartered Bank (4.49%) and Societe Generale Ghana Limited (7.77%). As earlier stated, the industrial sector of a company can have an influence on its dividend yield.

Even though dividend yields of the manufacturing sector are not that encouraging, there are a few exceptions. For instance, the average dividend yield of Benso Oil Palm Plantation Ltd., PZ Cussons, and Unilever Ghana Ltd. are 3.19%, 3.5% and 3.24% respectively. These are comparatively better than some of their counterparts in the manufacturing sector.

The average dividend yields of some companies, although good, are not evenly distributed over the years. One of such companies is AGA whose average dividend of 3% is mainly contributed by its 2009 dividend yield of 21.9%. ETI’s average dividend yield of 3.65% is similarly contributed by its 2009 dividend yield of 21.3%. Unfortunately, there are companies that have paid no dividend for such a long time (since 2009). Examples include African Champion Industries Limited, Golden Star Resources Limited, Golden Web Limited, Pioneer Kitchenware Limited, and Transol Solutions Ghana Limited.

GSE records 16.31% return in first half of the year

GSE performance

After failing to post positive results in the last two years, the Ghana Stock Exchange continue on its track of recovering from previous losses. This is reflected in its performance in the first half of the 2017 year. At the end of trading session yesterday (30th June 2017), the GSE Composite Index inched up by 12.77 points to close at 1,964.55, representing a year-to-date gain of 16.31%. Likewise, the GSE Financial Stocks Index edged up by 11.5 points to close at 1,824.88, representing a year-to-date gain of 18.08%. Yesterday’s gains were made possible by six gainers and no losers. At the end of the trading session, Standard Chartered Bank Limited (SCB) led the gainers with 11 pesewas to close at GH¢17.04 per share. This was followed by Benso Oil Palm Plantation Limited (BOPP) and Ghana Oil Company Limited (GOIL), which gained 8 pesewas and 5 pesewas each to close at GH¢4.40 and GH¢1.87 per share respectively. Fan Milk Limited (FML) also gained 4 pesewas to close at GH¢11.82 per share while Enterprise Group Limited (EGL) and Ecobank Transnational Incorporated (ETI) both gained a pesewa each to close at GH¢2.39 and GH¢0.13 per share respectively.

In relation to the year-to-date performance of individual stocks, UTB bank lead with 133.33%, followed by BOPP (111.54%) and GOIL (70%) respectively. These are then followed by GCB (46.07%), SCB (39.98%), ETI (30%) and SOGEGH (20.97%). Others include CAL bank (16%), ALW (14.29%), SCB PREF (13.33%), TOTAL (12.12%), FML (6.1%), EGH (6.06%) and UNIL (5.76%).

Despite the overall positive results of the exchange, a few listed stocks posted negative returns in the half year. Notable of these stocks are Mechanical Lloyd Company Limited (-33.33%), HFC Bank (-26.67%) and Tullow Oil Plc (-22.10%). Other stocks with losses so far include Starwin Products Limited (-33.3%), Produce Buying Company Limited (33.3%), Ayrton Drugs Manufacturing Co. Ltd. (16.67%), PZ Cussons Ghana Limited (-9.09%), Guinness Ghana Breweries Limited (8.59%) SIC Insurance Company Limited (-8.33%), AngloGold Ashanti Depository shares (-7.69%) and Access Bank Ghana (-7.32%).

In the same period, a few stocks such as Agricultural Development Bank, Golden Web Limited, Cocoa Processing Company Ltd. and Clydestone (Ghana) Ltd. neither recorded a gain nor a loss.

Get to know your mutual funds: SAS Fortune fund

SAS fortune fund

Our first post on the ‘Get to know your mutual funds’ series started with Epack investment fund, where we highlighted aspects such as the nature, investment strategy and performance of the fund. To continue the series, let’s have a look at SAS Fortune fund. Continue reading “Get to know your mutual funds: SAS Fortune fund”

4 DUMB financial decisions I had made in the past

dumb financial decisions

Just about three months ago, I wrote on four smart financial decisions I had made in the past. As humans, we also make mistakes in some aspects of our lives, which include finances too. In the previous post, I mentioned how useful it was to learn from other people’s mistakes. You may therefore find it worthwhile to go through the following financial mistakes I made in the past, especially if you’re of the younger generation.

  1. Closing my first mutual fund account within just 2 months of opening

dumb financial decision_nokia 2300
Over-excitement propelled me to sell my first fancy phone to fund my first investment account

In reference to the previous post about SMART financial decisions, I made it known that I opened my first investment account in my early twenties, after attending an investment seminar. In fact, over-excitement from the seminar propelled me to sell my then multi-coloured phone to fund the investment account. This was a Nokia (2300) brand phone which I had used for just five months. Due to the strong passion to begin investing, I ignored the fact that I bought the phone for far more than the price I resold it. Imagine buying a phone at GH¢150 (then ¢1,500,000) and then selling it just after five months of usage, for GH¢60 (then ¢600,000). That was exactly what I did. As you can see, this was surely not financially prudent. What made it worse was that the investment account could not last as it should have been. Selling my first fancy phone to fund my first investment account appeared to be easy. However, coping with the ‘phoneless’ life afterwards could not stand the test of time. I couldn’t even wait for three months- I promptly went back to the financial institution for the account’s closure.

Even though it was a good initiative on my side to open an investment account at an early stage, it was also dumb to close the said account just after two months of opening. By now, you may be aware of the cost implications of closing an investment account prematurely. First, the investment fund (an equity mutual fund) had made losses during the two-month period I stayed invested. Hence, the GH¢60 invested had significantly reduced in value to my disappointment. In addition, I was charged 3% of the remaining amount as early withdrawal fee (which I was not made aware of during the account opening). As if what I went through was not enough, I further topped up the retrieved money with additional fund sourced from my SSNIT (students’) loan instalment to purchase another fancy phone. This was Nokia 6610i, bought for GH¢200 (then ¢2,000,000). Imagine what GH¢200 could do if invested in 2006. Certainly, this was a clear example of opportunity cost [the profit I could have gained from investing the GH¢200 but gave up and rather chose to spend the GH¢200 on a luxury phone].

  1. Not diversifying my investment portfolio sufficiently

dumb financial decisions _diversificationBack in the olden days, I would be staying glued to the television set on Saturday evenings awaiting the NLA (National Lottery Authority) lottery draw on GTV. Just like other kids at the time, the only means to be part of the lottery game was to randomly pick 5 out of the 90 numbers to be drawn and watch if any of them would stand a chance of being drawn. Imagine staking 5 out of 90 lotto numbers. The chances of winning are definitely less as compared to staking many numbers such as 10, 20, or even 30 out of the 90 lotto numbers. Realising how difficult it was to get any of my selected numbers being drawn, I henceforth decided to go beyond five numbers. I quite remember writing down at least 10 different numbers just to increase my chances of ‘wining’ and indeed, I did ‘win’ on many occasions 🙂

I’m sure by now you’re wondering what lotto numbers has got to do with investment diversification. Now, let’s take a look at the Ghana Stock Exchange. Imagine owning stocks in just a couple of the 40 listed companies and regularly sitting close to your computer screen to monitor stock prices on the market. You would realise that your chances of having your stocks being among the gaining list are very less. The situation is different when you own stocks of several listed companies instead of few ones. That is the relationship I’m trying to draw between the lotto numbers and investment (stocks) diversification. During my early stage of investing, my investment picks were confined to few products, in particular stocks. Similar to the lottery story above, I would be staying close to the television watching the GSE updates section of business news. Unfortunately, the few companies from which I owned some stocks were outside the winning team most of the time. Besides that, my portfolio was easily subjected to avoidable shocks and turbulence effects of the stock market in times of bad economy.

See also: My bad experience with a long-term bond: The lessons learnt

  1. Not taking advantage of market falls

dumb financial decisions _market fallsAlthough history shows that stock markets always come out of crisis, we try to shy away from bad markets, either consciously or unconsciously. A number of seasoned investors advise us to take advantage of falling markets. One such key person is Warren Buffet who is noted for the statement that “the key to successful investing is to buy low, [and] sell high”. Nonetheless, the fear to lose one’s investment forces us to do otherwise. This was a similar situation I found myself in- I ignored the opportunities in fallen markets. In fact, I had witnessed the stock market fall a number of times but failed to take advantage of that.

As explained earlier, the lack of diversification exposed my investment portfolio to turbulence effects of the stock market in bad times. This effect could have been minimised or neutralised if I had purchased more of the fallen-priced stocks at the time. One means to mask stocks’ losses is to buy more of the fallen-priced stocks. In doing so, you aim to neutralise the negative effects (losses) posed on the currently owned stocks.


  1. Selling stocks at the wrong time

The lack of proper investment diversification resulted in the sale of stocks during needy circumstances. Surely, selling stocks without making any gain is not worth it. The worse part is that fees and commissions would be paid irrespective of the negative returns. Buying or selling stocks on the GSE attracts a commission of up to 2.5% of the traded amount (This, I never knew at the time though). Thus, within a short period of holding the stocks, a total commission of 5% (for both buying and selling) was paid to the stockbrokers. Even though I sold them to make ends meet, the timing was not right to make some gains. This could have been avoided if I had properly diversified my investment (by including other investment categories such as short-term products). At least, I could have waited for a while so as to make some capital gains.

   Lessons that could be learnt

Failure, they say, becomes a progress when we learn from it. Although I failed to maintain my first investment account, at least, the passion seemed to be still latent. This passion resurrected a few years later when I opened another account which is still active to date. Like the saying goes, ‘don’t let your fall turn to be your downfall’. Furthermore, limit your expenses on luxuries.

Again, don’t be a victim of poor investment diversification. With a well-diversified portfolio, you stand a greater chance of winning many times. Proper diversification is essential for the resistance of shocks on investment portfolio.

Finally, take advantage of market falls. Purchase more of good companies’ stocks when prices go down. In that way, you minimise the negative effects (losses) on currently owned stocks.

Percentage rates of investments: Interpreting them correctly

percentage rates of investments

Percentage rates appear to be popular in many financial publications. We see them in different forms- either positive or negative. As investors, some common areas we find percentage rates interesting are documents that deal with investment returns or profits. Many investors, as well as prospective ones, look out for rates quoted by financial institutions to make informed decisions. Unfortunately, most prospective investors get confused in the interpretation of these rates. Besides the misinterpretation of percentage rates, others naively compare rates associated with different investment categories. Their naivety reflects in the manner they query or make statements such as:

  1. “Which mutual funds have the highest interest rates?”
  2. “Which stocks have high interest rates?”
  3. “The interest rate of Mfund [money market fund] is higher than that of Epack [equity fund]”

One consequence of misinterpreting percentage rates is the disappointment that follows when lower-than-expected returns are made on an investment. During a chat with John (a follower of Sikasεm) a few days ago, I was not surprised when he expressed the frustration he had recently been through. He revealed:

“I nearly cried when 700 cedis in an account yielded only 4.57cedis.”- John Mensah

I understand many more people have had such an experience before. Yes! It is a very painful experience to go through. However, to avoid or reduce the impact of similar painful experiences, it would be worthy to study a few of the percentage rates we usually come across in investment products.


Annual interest rate

The most common investment products that make use of annual interest rates are Treasury bills and fixed deposits. The interest rates quoted on the various Treasury bills and fixed deposits are annually-based. That is, the return or profit earned on these investment products, when utilising the quoted interest rates, is for a period of one year (12 months). However, T-bill investments do not always mature in 12 months. For instance, the 91-day and 182-day T-bills mature after three months and six months respectively. Hence, the calculated interests need to be prorated (distributed) for the actual maturity periods. That is three months and six months for the 91-day and 182-day T-bills respectively.

To be clearer on this, let’s go through the sample calculation below.

     How to calculate Treasury bill interest

Let’s assume that you invest GH¢1000 at the current 91-day T-bill rate of 13.4700%,

Now, since the quoted interest rate (13.4700%) is an annual (12-month) rate, the total interest on the GH¢1000, after 12-months, would have been (1000×0.1347) = GH¢134.7


However, 91-day T-bill investment matures after three months. Hence the above total interest needs to be prorated for a three-month investment period.

Thus, the real interest to be earned on the GH¢1000 would be (1000×0.1347)/4 = GH¢33.675

Note that 3 months × 4 = 1 year. That is why you see the total (annual) interest being divided by 4

In a similar manner, the annual interest would have been divided by 2 if it were to be 182-day (6 months) T-bill investment.


Another means to estimate your T-bill or fixed deposit interest is to first distribute the calculated annual interest per each month and further multiply the monthly interest by the actual number of months the money stayed invested.  Using the same example above, the interest earned per month would be (1000×0.1347)/12 = GH¢11.225 Remember that there are 12 months per annum (year).

Now, since the money is being invested for 3 months (91-day T-bill), we multiply the monthly interest figure by 3. That is, (GH¢11.225×3) = GH¢33.675


Annual yield

Annual yield is the annual rate of return on an investment, taking into consideration the compounding effect of any intermediary interest earned. Annual yield is most often reported as the investment return on money market funds (a pool of fund invested in fixed income products). Managers of money market funds, while estimating the annual yield, assume that the funds would remain intact in the account for one year (365 days). For instance, the estimated annual yield of HFC Unit Trust on 10th May 2017 was reported as 20.31%. What this means is that assuming the funds in HFC Unit Trust remain intact from 10th May 2017 to 10th May 2018 (one year), the estimated rate of return would be 20.31%. That is, the value of the mutual fund would appreciate by 20.31%. However, since investors continue to deposit and withdraw from mutual funds, the funds are therefore not expected to remain intact throughout the full year. Thus, fund managers keep revising their annual yield on a daily basis to reflect the changes. For this reason, it may be difficult to precisely calculate the return on a mutual fund (money market) investment over a period.

Due to the effect of compounding, investment returns associated with money market funds may not be evenly distributed over the investment duration. Let’s assume that you had invested GH¢1000 in Databank’s Mfund on 12th May 2017. Annual yield of Mfund on 12th May 2017 was 19.88%. Thus, the estimated return (profit) on the GH¢1000 after one year would be (GH¢1000×0.1988) = GH¢198.8 However, the GH¢198.8 takes into account the compounding effects of intermediary profits that are reinvested by the fund managers. As such, it cannot be equally distributed by each of the 12 months. This implies that if the GH¢1000 stays invested for just six months instead of the 12 months, you cannot expect to earn half of the annual profit.

Once again, let’s go through another example using real historical data.


Table: Historical investment value of an Mfund account

Date Mfund value, GH¢ Monthly return, GH¢
30/09/2016 879.41 —–
31/10/2016 894.71 15.3
30/11/2016 912.03 17.32
31/12/2016 928.61 16.58
31/01/2017 945.83 17.22
28/02/2017 958.98 13.15
31/03/2017 971.49 12.51
30/04/2017 988.82 17.33


The table above shows the value of an Mfund investment account (a money market fund) over a seven-month period. Based on the investment values, the monthly returns are also calculated by subtracting preceding values from current ones.

Even though the fund manager (Databank) had estimated an annual yield of about 23% at the time, the returns (as seen in the table) were not equally distributed over the period- They differed from one month to another. For instance, November return of GH¢17.32 had increased from the October return of GH¢15.3. On the other hand, the return in January (GH¢17.22) had dropped to GH¢13.15 in February. Factors that account for non-equal distribution of Mfund returns include, but not limited to, compounding effect of intermediary profits as well as changes in interest rates of fixed income products during the investment period.


Year to date return (YTD)

Whenever we mention year to date, we refer to the period between the start of a calendar year and the present date of the same year. The beginning of the calendar year often has 1st January as the baseline. Year to date return therefore refers to the return or profit made so far, from 1st January to the present day of the calendar year. For instance, a year to date investment return of 10%, as of 30th April 2017, implies that from 1st January to 30th April 2017, a return of 10% had been made on the investment.

Year to date returns are usually reported on equity-related investment products such as the Ghana Stock Exchange (GSE), Epack investment fund, SAS fortune fund and HFC Equity Trust. Similar to the annual yield explained earlier, year to date returns can drop or increase from time to time within a calendar year. Again, year to date returns do not accumulate in a linear functional manner. In other words, they do not distribute proportionally along the calendar year. The mere fact that a year to date return after the first four months (30th April) was 10% does not necessarily mean that the return at the end of the year (31st December) would be 30%. This is due to price fluctuations on the equity markets. On every business day, equity fund managers recalculate their year to date returns based on the present prices of stocks.

It is also important to note that published YTD returns mostly affect existing shareholders than prospective ones. Now let’s have a look at the scenario below:

percentage rates of investments_scenario

From the scenario above, it is clear that the investor lacked understanding of YTD returns. This is a common mistake many prospective investors make when investing in equity funds. As I mentioned before, YTD returns mostly affect existing shareholders. Thus, the 45% the prospective investor noticed in September 2016 was a profit that had been ‘earned’ already by the existing shareholders of the equity fund. To accurately estimate his return, he needed to do that in reference to September 2016 since that was when he made the deposit. According to the scenario, the fund had lost 5% (45% to 40%) from September to December. Hence, the investor had actually lost part of his deposit.

In a similar situation, an existing shareholder who topped up his account in September 2016 would not enjoy profit on the additional deposit that was made in September. Nevertheless, he would enjoy the 40% return on his previous investment (prior to the deposit in September) if that investment had stayed in the equity fund from January to December 2016.


Comparing percentage rates

It is important not to compare percentage rates of different categorical investments. For example, the annual yield of HFC unit trust (a money market fund) as of 10th May 2017 was 20.31%. On the same day, the year to date return on HFC equity trust (an equity mutual fund) was 9.68%. It would be a big mistake to compare these two percentage rates and assume that HFC unit trust performs better than HFC equity trust. This is because the 9.68% return on HFC equity trust is only for the period of 1st January 2017 to 10th May 2017 while the 20.31% on HFC unit trust is a 12-month estimated rate.

On another note, it may not be appropriate to compare the year to date (YTD) returns of two different equity funds in the early part of a year. As stated earlier, YTD returns do not distribute proportionally along the calendar year. For instance, the YTD returns of SAS fortune fund and Epack investment fund, as of 11th May 2017, were 14.51% and 5.4% respectively. While the rate for SAS fortune fund is higher than that of Epack, it may be premature to conclude that SAS fortune fund performs better than Epack investment fund. This is because the YTD return of SAS fortune fund may drop while that of Epack can rise steeply before the year ends. Thus, a more appropriate comparison could be done at the end of the calendar year.

Stock analysts predict buoyant performance on GSE

GSE returns

Stock analysts are confident trading activities will bounce back in the second quarter following a pickup in trading activities on the local bourse. The 2017 first quarter performance indicate that the stock market gained about 10 percent growth compared to the negative 4.26 percent recorded in the same period last year.

While investors of GCB Bank gained 1 cedi 64 pesewas to record the highest gains in the first quarter of this year, investors of CAL Bank were the highest losers as their stocks dropped almost 35 percent in the first quarter of this year.

With about 46 percent increase in price, GCB Bank topped the gainers for the first quarter. It was closely followed by Benso Oil Palm Plantation and StanChart which recorded 39.42 and 26.85 percent respectively.

Also, the share prices of Ecobank Ghana, Total Petroleum and Unilever Ghana Limited increased by 14.06, 11.11 and 5.76 percent respectively. With the exception of Unilever Ghana Limited, all the gainers for this year’s first quarter ended 2016 with losses on their share prices.

Also, of the top five gainers, only Benso Oil Palm and Unilever Ghana Limited recorded some gains in the same period last year.

An Associate Equity Trader at UMB Stockbrokers, Kofi Busia Kyei, explains to Citi Business News the reasons accounting for the performances of the listed companies that gained in the first quarter of 2017.

Investors were taking positions quickly ahead of the expectations of the new regime. They were expecting interest rates and inflation to drop…GCB has been resilient over the years, it gained about 22.1 percent in profits…generally, the bank has been a very good company,” he said.

But investors of CAL Bank recorded the highest loss on their share prices. The banking stock declined as much as 34.67 percent. It was preceded by Tullow Oil and Produce Buying Company with -22.60 and -16.67 percent respectively. Also, Guinness Ghana Limited, SIC Insurance and Enterprise Group recorded losses of 7.98, 1.52 and 0.42 percent respectively.

Kofi Busia Kyei further explains reasons accounting for their poor performances:

Basically CAL Bank’s profits were down over the period, down by over one hundred percent comparing 2016 and 2015…their cash also went down by 80 percent; investors also look out for these indicators before making decisions.

Meanwhile, the share prices of the remaining stocks such as HFC Bank, Ecobank Transnational Incorporated, Goil, ADB, UT Bank, Ayrton and Access Bank, remained unchanged.

The stock analysts are highly optimistic of the second quarter of 2017. They cite the new pro-business policies by the government and recent trends in interest rates as basis for their claim.

Also, the Managing Director of the Ghana Stock Exchange, Kofi Yamoah, tells Citi Business News he is hopeful the market will pick up despite a bullish performance in 2015 and 2016.


Credit: citibusinessnews.com

Performance of stocks on the Ghana Stock Exchange

performance of stocks

Investing in stocks is proven to be one of the most lucrative means of building wealth. Stocks may be either listed or unlisted. Unlisted stocks (also known as over-the-counter stocks) are stocks that are not traded on a stock exchange but directly between two parties in a non-standardised form. Listed stocks, on the other hand, are stocks traded on a regulated market or exchange such as the Ghana Stock Exchange. There are currently about 40 listed stocks on the Ghana Stock Exchange. These are made up of various industrial sectors such as banking, insurance, manufacturing, mining, and petroleum. Usually, the performance of stocks on the Ghana Stock Exchange is captured by the ‘GSE all-share index’. The GSE all-share index, which can further be represented in a percentage format  (GSE return), reflects the overall performance of all listed stocks on the exchange. Refer to this link for all historical GSE returns (from inception to date).

Besides the GSE all-share index, the performance of stocks can also be measured for each individual stock. The most common means of doing this is by computing the return on the stock based on its share price appreciation (or depreciation) over a period. For instance, if a stock starts trading at the beginning of the year at GH¢2 and closes at the end of the same year at GH¢3, the said stock would be making an annual return of 50%. That is [(3-2)/2] ×100.

In the table below, you will find the historical returns of the various stocks listed on the Ghana Stock Exchange. These figures, covering the past six years, are calculated based on their opening and closing prices for each of the years under study. The average returns for the latest five-year period (2012-2016) are also computed.

See also: Performance comparison of mutual funds in Ghana

Performance of stocks: Historical returns of stocks listed on GSE
2011 2012 2013 2014 2015 2016 Latest 5-year average
1 AngloGold Ashanti Depository shares AADS -16.7 4 0 1.9 -1.9 0 0.8
2 Access Bank Ghana ACCESS N/A N/A N/A N/A N/A N/A N/A
3 African Champion Industries Limited ACI 0 -12.5 -14.3 -66.7 0 -50 -28.7
4 Agricultural Development Bank ADB N/A N/A N/A N/A N/A N/A N/A
5 AngloGold Ashanti Limited AGA 0 8.8 0 0 0 0 1.76
6 Aluworks Limited ALW 8.3 -61.5 0 -60 600 0 95.7
7 Ayrton Drugs Manufacturing Co. Ltd. AYRTN 6.3 5.9 0 5.9 0 -25 -2.6
8 Benso Oil Palm Plantation Limited BOPP 46.7 27.3 129.3 27.7 -38.8 -17.1 25.7
9 CAL Bank Limited CAL -9.4 35.7 162.2 4.1 2 -25.7 34.9
10 Clydestone (Ghana) Limited CLYD -42.9 0 0 -25 0 0 -5
11 Camelot Ghana Limited CMLT -25 16.7 14.3 -25 0 0 1.2
12 Cocoa Processing Company Limited CPC 0 0 0 0 0 0 0
13 Ecobank Ghana Limited EGH (Formally EBG) 6.3 -6.3 87 35.5 -7.6 -8.6 20
14 Enterprise Group Limited EGL -24 26.3 291.7 -6.9 37.1 0 69.6
15 Ecobank Transnational Incorporated ETI -21.4 20 58.3 47.4 -3.6 -63 11.8
16 Fan Milk Limited FML -3.3 50.4 86.5 -20.7 40 51.7 41.6
17 GCB Bank Limited GCB -31.5 13.5 131 13.4 -34.9 -6.1 23.4
18 Guinness Ghana Breweries Limited GGBL -1.9 71.2 136.6 -48.4 -37.8 -18.1 20.7
19 NewGold Issuer Limited GLD N/A N/A -18.8 37 8.9 -0.5 N/A
20 Ghana Oil Company Limited GOIL 10.3 93.8 43.5 19.1 33.3 -21.4 33.7
21 Golden Star Resources Limited GSR -47.1 0 0 -14.9 -15 -2 -6.4
22 Golden Web Limited GWEB -20 0 0 -25 -66.7 0 -18.3
23 HFC Bank (Ghana) Limited HFC 2.3 0 113.3 68.4 -43.8 -15.6 24.5
24 Mega African Capital Limited MAC N/A N/A N/A N/A 33.3 0 N/A
25 Mechanical Lloyd Company Limited MLC 10 36.4 153.3 -26.3 -32.1 -21.1 22.0
26 Produce Buying Company Limited PBC 92.3 -28 -5.6 -29.4 -16.7 -40 -23.9
27 Pioneer Kitchenware Limited PKL -14.3 0 0 0 -16.7 0 -3.3
28 PZ Cussons Ghana Limited PZC N/A -25 338.9 -62 13.3 -35.3 46.0
29 Standard Chartered Bank (GH) Ltd. SCB 0.7 -74.7 29.9 36.2 -19.9 -25.2 -10.7
30 Standard Chartered Bank (GH) Ltd. (Prefrence shares) SCB PREF 0 0 0 5.8 29.1 5.6 8.1
31 Societe Generale Ghana Limited SOGEGH (Formally SG-SSB) -28.1 2.1 56.3 33.3 -20 -22.5 9.8
32 SIC Insurance Company Limited SIC -7 -15 14.7 -5.1 -62.2 -14.3 -16.4
33 Starwin Products Limited SPL -40 66.7 -20 -50 100 -25 14.3
34 Sam Woode Limited SWL 0 0 50 33.3 0 0 16.7
35 Trust Bank (Gambia) Limited TBL -69.9 0 -12.5 -31.4 54.2 -29.7 -3.9
36 Tullow Oil Plc TLW N/A 22.7 -8.1 0 -6 -18.3 -1.9
37 Total Petroleum Ghana Limited TOTAL 98.3 18.5 N/A 20.6 -16.4 -61.2 N/A
38 Transol Solutions Ghana Limited TRANSOL -28.6 -20 -25 0 0 0 -9
39 Unilever Ghana Limited UNIL 16.7 28.3 114.9 -41.6 -20.6 0.1 16.2
40 UT Bank Ghana Limited UTB 14.3 18.8 18.4 -44.4 -60 -70 -27.4

*N/A: Not available, mainly because the company was not listed on the stock market by then

Performance of stocks: Brief observations

According to the data above, the performance of stocks for most listed companies has not been encouraging over the six-year period. For instance, African Champion Industries Limited (ACI), Clydestone Ghana Limited (CLYD), Golden Star Resources Limited (GSR), Golden Web Limited (GWEB), and Transol Solutions Ghana Limited (TRANSOL) never recorded a single positive return throughout the period. Moreover, their latest 5-year average returns were -28.7%, -5%, -6.4%, -18.3% and –9% respectively.

Another key observation from the data has to do with stock volatility. Even though some stocks depict impressive average returns for the latest five-year period, the trend of their annual returns appears to be erratic. A typical example is Aluworks Limited. According to the data, Aluworks’ 5-year average return (95.7%) was contributed by the sole remarkable return (600%) it recorded in 2015. PZ Cussons similarly posted a 5-year average return of 46% which was mainly due to the 338.9% it recorded in 2013.

On the other hand, some listed companies have been consistent in good shape over the six-year period. A few of these stocks, according to the data, include Benso Oil Palm Plantation Limited (BOPP), Ghana Oil Company Limited (GOIL) and Fan Milk Limited (FML). BOPP recorded negative returns for two years (2015 & 2016) and positive returns for the rest of the four years. It further posted a 5-year average return of 25.7%. Similarly, Fan Milk Ltd recorded negative returns in 2011 and 2014, positive returns for the rest of the four years and a splendid 5-year average return of 41.6%. GOIL recorded only one negative return in 2016, with a 5-year average return of 33.7%.

In terms of industrial sectors, the banking and finance stocks seem to perform better than stocks of other sectors. A few studies show that the well-being of an organisation’s industrial sector may impact the performance of its stock. It is due to this reason why investors are advised to invest in industries they are familiar with. Thus, it may be beneficial to look further and compare the performance of stocks according to their industrial sectors. Refer to this link for the historical returns of stocks categorised by their various industrial sectors.

It is essential to note that stocks’ returns based on their price appreciation alone may not constitute their total performance. This is because other factors such as dividend payments and any bonus shares issued by the companies can also be considered. In spite of this, stocks’ returns play key role in terms of their performance rating. At least, we know that the rate of dividend payments by most companies is fairly low as compared to returns on stocks.

Furthermore, one must be cautious when utilising historical results for any financial decision. Although many financial analysts depend much on historical performance of stocks, a few veteran investors caution on such practices. For instance, Warren Buffet once argued that:

If past history was all there was to the game, the richest people would be librarians.”

In a nutshell, even though historical results may not guarantee the future performance of stocks, they may still aid investors to have a clear picture of what is happening on the stock market.

Could February be good month to buy stocks on GSE?

February _ex-dividend date

Very recently, I posted about dividend payments of some selected companies on the Ghana Stock Exchange. One thing peculiar about dividend declaration is ‘ex-dividend date’. Whenever board of directors declares dividends, they also announce an ex-dividend date in order to determine rightful owners of dividends for stocks purchased afterwards. To qualify for a declared dividend, investors must buy stocks, at least, one business day before the ex-dividend date. For example, when SOGEGH (Societe Generale Ghana Ltd.) declared dividends last year, it further announced ‘23rd March, 2016’ as the ex-dividend date. What this implies is that any investor who purchased SOGEGH shares before 23rd March, 2016 was entitled to the declared dividend. On the other hand, any seller of SOGEGH shares traded after the said date was entitled to the declared dividend.

Now, before you ask the question ‘what has ex-dividend date got to do with buying stocks in February?’ consider visualising the purchase of a cow that is due to deliver a calf. All things being equal, you (as the buyer of the cow) stand to benefit from the additional calf in the immediate term.

Back to the dividend subject, February is known to be the month when many traded companies begin to declare their final dividends for the preceding financial year. Even though some institutions publish their dividends later in the year, many declarations often start in the latter days of February through the months of March and April. Examples of trading companies that had previously declared their dividends in the said period can be found below:

  1. CAL Bank Ltd.
  • Dividend for the 2009 financial year was published on 2nd March 2010
  • Dividend for the 2010 financial year was published on 28th February 2011
  • Dividend for the 2013 financial year was published on 21st February 2014
  • Dividend for the 2015 financial year was published on 29th February 2016
  • Dividend for the 2009 financial year was published on 23rd February 2010
  • Dividend for the 2010 financial year was published on 3rd March 2011
  • Dividend for the 2011 financial year was published on 8th March 2012
  • Dividend for the 2013 financial year was published on 5th March 2014
  • Dividend for the 2015 financial year was published on 3rd March 2016
  1. GCB Bank
  • Dividend for the 2012 financial year was published on 30th April 2013
  • Dividend for the 2013 financial year was published on 30th April 2014
  • Dividend for the 2014 financial year was published on 31st March 2015
  • Dividend for the 2015 financial year was published on 19th April 2016
  1. Fan Milk Ltd.
  • Dividend for the 2008 financial year was published on 16th March 2009
  • Dividend for the 2009 financial year was published on 17th March 2010
  • Dividend for the 2010 financial year was published on 6th April 2011
  1. HFC Bank
  • Dividend for the 2008 financial year was published on 26th March 2009
  • Dividend for the 2009 financial year was published on 11th March 2010
  • Dividend for the 2014 financial year was published on 31st March 2015

Imagine buying some of these mentioned stocks and getting entitled to their declared dividends (if purchased before the ex-dividend dates). As mentioned earlier, it’s like purchasing a cow that is due to deliver a calf or purchasing a chicken that is due to lay eggs. In this instance, the calf or the eggs correspond to the dividends due to be paid.

february_pregnant stock

Getting paid dividends for stocks held for just a couple of months is a great deal. I mentioned in my previous post that dividend yields of stocks usually range from 4-9%. Let’s assume that you purchase CAL Bank’s stock whose historical dividend yield swings around 8%. If you hold these stocks for 3 months and get paid the dividend, your benefit would outweigh fellow shareholders who might have held their stocks for 1 year (12 months) but getting paid the same dividend yield. In fact, the 8% dividend yield (of stocks held for 3 months) extrapolates to about 32% per annum. [That is, (12/3) × 8 = 32%]

Don’t forget that some well-informed investors hold on to their stocks anytime dividends are declared even if they had earlier intended to sell them. They do so, in particular, if the dividend yields are good. Their motive is to postpone any sale of stocks until the ex-dividend date in order to gain from the dividend payments. Hence, before you wait for listed companies to begin publishing their dividends, why don’t you take advantage of it now? As you know, buying stocks on the GSE may also take processing time.