How To Buy Shares In Nigerian Companies

Investing in shares can be a smart way to build wealth, and the Nigerian stock market offers ample opportunities for both novice and seasoned investors. With the right knowledge, buying shares in Nigerian companies can be a relatively straightforward process. This blog post will provide a step-by-step guide on how to buy shares in Nigerian companies, covering key concepts, how to get started, regulatory bodies, and tips for successful investing in Nigeria.

What are Shares?

Before diving into the process of buying shares, it’s important to understand what shares are and why people invest in them. Shares (also known as stocks or equities) represent ownership in a company. When you buy shares of a company, you become a part-owner of that company, and your ownership stake is proportional to the number of shares you own.

There are two primary reasons why people buy shares:

1. Capital Appreciation: This refers to the increase in the value of shares over time. If you buy a share at ₦100 and the price increases to ₦150, you can sell it for a profit.
2. Dividends: Many companies pay dividends, which are a portion of their profits, to shareholders. This provides a steady income stream to investors.

Why Invest in Nigerian Companies?

Investing in Nigerian companies can be attractive for several reasons:

• Economic Growth: As one of Africa’s largest economies, Nigeria has a diverse and growing market. Sectors like telecommunications, banking, agriculture, and consumer goods present promising opportunities.
• Potential for High Returns: While investing in any stock market carries risk, Nigerian companies, especially those listed on the Nigerian Exchange (NGX), can offer significant returns due to the country’s dynamic business environment.
• Participation in National Growth: Investing in shares allows individuals to take part in the growth of Nigeria’s economy and industries, contributing to national development.

How to Buy Shares in Nigerian Companies: Step-by-Step Guide

1. Understand the Nigerian Stock Market

   The Nigerian stock market is primarily made up of the Nigerian Exchange (NGX) Group, formerly known as the Nigerian Stock Exchange (NSE). The NGX provides a platform for buying and selling shares of publicly traded companies in Nigeria.

   • Nigerian Exchange (NGX): This is where most companies are listed, offering a wide range of shares for purchase across various sectors.
   • Over-the-Counter (OTC) Market: This is another platform where stocks not listed on the NGX can be traded, though it is less common.

   The market is regulated by the Securities and Exchange Commission (SEC), which ensures the protection of investors and fair trading practices.

2. Choose a Stockbroker

   You cannot buy shares directly from the stock exchange as an individual investor. You must use a stockbroker who is licensed by the Nigerian Stock Exchange (NGX) to trade on your behalf. Stockbrokers act as intermediaries between you and the stock market.

   When choosing a stockbroker, consider the following:

   • License: Ensure the stockbroker is licensed by the NGX and registered with the SEC.
   • Reputation: Check their track record, fees, and customer service. Some reputable brokers in Nigeria include Stanbic IBTC Stockbrokers, Meristem Securities, ARM Securities, and FBN Quest Securities.
   • Online or Offline Brokerage: Some stockbrokers offer online platforms where you can trade shares yourself, while others may require you to give instructions over the phone or in person. Choose a platform that suits your needs.

   Many Nigerian stockbrokers offer online trading platforms, which make it easy for investors to buy and sell shares from the comfort of their homes. Popular online platforms include Meritrade by Meristem and Stanbic IBTC e-Trade.

3. Open a CSCS Account

   Before you can buy shares in Nigeria, you must open a Central Securities Clearing System (CSCS) account. The CSCS is the clearinghouse for all shares traded on the NGX. It keeps records of share transactions and ensures that shares are properly transferred between buyers and sellers.

   Your stockbroker will help you open a CSCS account. Once you have your CSCS account number, you can begin trading shares. The CSCS account acts as your personal stock portfolio, keeping track of all the shares you own.

4. Fund Your Trading Account

   After opening a CSCS account, you need to fund your stockbroker’s account to begin trading. Most brokers require an initial deposit to start trading. This amount can vary, but many brokers have no minimum deposit requirement, allowing you to start with as little or as much as you want.

   You can fund your trading account through:

   • Bank Transfer: Many stockbrokers accept direct bank transfers into their trading accounts.
   • Online Payment Platforms: Some brokers accept online payment methods such as Paystack, Flutterwave, or debit card payments.
   • Cheques or Cash Deposits: Some brokers may still accept physical deposits, though this is less common in today’s digital age.

5. Research Nigerian Companies

   Before buying shares, it's crucial to do your homework. Research the companies you’re interested in by examining their financial health, management team, growth prospects, and industry position. Important metrics to consider include:

   • Price-to-Earnings (P/E) Ratio: This ratio compares a company’s stock price to its earnings per share (EPS). A high P/E ratio can indicate that a stock is overvalued, while a low P/E ratio may indicate an undervalued stock.
   • Dividend Yield: This measures how much a company pays out in dividends each year relative to its share price. High dividend yields can be attractive to income-focused investors.
   • Earnings Growth: Look at the company’s historical earnings growth and future projections. A company with consistent earnings growth is often a good investment.

   Sources for research include:

   • Company Annual Reports: Available on the NGX website or the company’s website.
   • Stockbroker Research Reports: Many brokers offer research reports and stock recommendations.
   • News Outlets: Nigerian business news websites like BusinessDay, Nairametrics, and Proshare provide insights into the performance of companies listed on the NGX.

6. Place Your Buy Order

   Once you've identified the shares you want to buy, it's time to place your order through your stockbroker. There are two main types of orders:

   • Market Order: This means you are buying the shares at the current market price. Market orders are executed quickly but may be subject to price fluctuations.
   • Limit Order: With a limit order, you specify the price at which you want to buy the shares. The trade will only be executed if the stock reaches that price.

   After placing your order, the broker will execute the trade on the NGX. You will receive a contract note showing the details of the transaction, including the number of shares purchased, the price, and the broker’s commission.

7. Monitor Your Investment

   After buying shares, it’s important to regularly monitor your investments. Stock prices can fluctuate due to various factors, including company performance, economic conditions, and market sentiment.

   Stay informed by keeping up with financial news, reading company announcements, and reviewing quarterly earnings reports. If your investment goals or the market environment changes, you may need to adjust your portfolio accordingly.

8. Reinvest Dividends

   If the companies you've invested in pay dividends, you’ll have the option to reinvest those dividends by buying more shares. Reinvesting dividends can help you grow your portfolio over time, as it compounds your earnings.

   Alternatively, you can withdraw dividends as cash. Many Nigerian companies pay dividends once or twice a year, and the payment will be credited directly to your bank account or reinvested into more shares, depending on your preference.

9. Understand the Risks

   Like any investment, buying shares carries risks. Stock prices can go up or down, and there’s always the possibility of losing some or all of your investment. To mitigate these risks, consider the following:

   • Diversification: Don’t put all your money into one company or sector. Spread your investments across different industries to reduce risk.
   • Long-Term Perspective: The stock market can be volatile in the short term, but it tends to increase in value over the long term. Be patient and avoid making impulsive decisions based on short-term price movements.

10. Stay Informed About Regulations

    The Nigerian stock market is regulated by the Securities and Exchange Commission (SEC). It’s important to stay informed about any regulatory changes or updates that may affect your investments. The SEC provides oversight and ensures that the stock market operates fairly and transparently.

Conclusion

Buying shares in Nigerian companies is a great way to participate in the country's economic growth and potentially earn significant returns on your investment. By following the steps outlined in this guide—choosing a reputable stockbroker, opening a CSCS account, funding your trading account, researching companies, and placing orders—you can start your investment journey with confidence.

Investing in the stock market requires patience, research, and a long-term perspective. While there are risks involved, smart investing strategies like diversification and reinvesting dividends can help you build a profitable portfolio. With the rise of online trading platforms in Nigeria, it’s easier than ever for individuals to buy shares and grow their wealth.