Investing for cash dividends is the right strategy now: Analyst Shahriar Azad

In the bearish market, investors should look for strong defensive stocks at a decent price, eying good dividends over years, instead of chasing quick or big capital gains from speculative or growth stocks, suggested chartered financial analyst (CFA) Shahriar Azad Shashi.

Starting his career eight years ago in securities analysis and switching to asset management, he now serves the financial services unit of Swiss firm SELISE Digital Platforms as the Business Development Head in the country.

Defensive stocks belong to sectors that are less exposed to risks during an economic slowdown, he said in a recent interview with The Business Standard.

For instance, in contrast to their aversion or deferral toward non-essential products and services, people tend to keep buying medicine and other essential consumer goods during economic hardship.

The ongoing upward pressure on interest rates is helping cash-surplus companies' financial income increase, and such firms from defensive sectors are good to buy in the down market now, according to the analyst.

Square Pharmaceuticals Ltd, for example, he stated, has significant cash reserves, market leadership, and a stellar track record of corporate governance. Against the current market price of Tk209 apiece, its 100% cash dividend is yielding nearly 5% for investors.

"I expect the stock to give me a decent return over a long period of time," he predicted.

Marico Bangladesh Ltd, which controls 80% of the local hair care market, promotes a return on shareholders' equity, and pays quarterly cash dividends, is another long-term investment option, according to him.

Besides, the three state-run fuel oil distribution companies – Padma Oil, Jamuna Oil and Meghna Petroleum – are another good option, as they earn a lot from their big cash assets.

When the interest rates went down in recent years, the three stocks suffered income drops as well as stock price declines in 2021 but now their income from bank deposits is improving as the multi-year high inflation is raising deposit rates.

He believes 8-10% dividend yields are lucrative from Bangladeshi scrips, while the average dividend yield is around 3.5% on the Dhaka Stock Exchange (DSE).

Many mutual funds are offering high dividend yields nowadays, along with some selective stocks, said Shashi.

State-owned Bangladesh Submarine Cable Company, the bulk internet data provider, is a good example of a growth stock that he prefers for investing as it keeps growing its top line with lucrative profitability.

"Such stocks might fall by even 50% depending on the market situation, but I am confident that they would pay me off in the long run," Shashi said, adding that the investment for dividends should not be for a particular season, but for years.

"Buy low, sell high, is the way of making money from any investment, which is what we have learned in finance, and the simple lesson is ignored by most in the stock market," he said adding that the market as a whole might not be that cheap, but some good stocks are, and investors should bag them at low prices instead of chasing them at higher prices for quicker gains.

Like most other analysts, Shashi finds a breathing space in the fact that the western central banks' recent moves do not hint at a further rise in global interest rates at this point.

"We may not fear that 2023 will be much worse than 2022," he said.

However, the resurgent in Covid cases in China and Vladimir Putin's actions regarding Ukraine brews an amount of uncertainty for the 2023 global economy, he added.

The improvement in the local energy situation, better-than-expected apparel exports, and an expected chunk of IMF loan would help Bangladesh's economy and balance of payments, he said, while the banking sector problem and lower remittance inflows through formal channels remain negative factors.