With most Nigerians finding it difficult to save for the future due to several factors, the management of Coronation Registrars has identified the role investment in securities could play in capital formation.
In a webinar themed, “The Role of Capital Formation and Dividend in Building Sustainable Wealth,” organised by the firm, the President and Chairman of Council, Institute of Capital Market Registrars, Oluseyi Owoturo, gave a direction on building sustainable wealth.
Speaking on the importance of reinvesting dividends, he said dividends could be a good source of capital formation through reinvestment.
According to him, dividends can be reinvested to purchase additional productive assets, especially dividend of specific companies investors may have invested in, thereby compounding returns over time.
“For investors that are focused on building sustainable wealth, dividends are crucial components. They provide a regular income that can be reinvested to further enhance wealth.
Now, how does this work? The interplay of capital formation and dividends.
“The synergy between capital formation and dividend is vital in the pursuit of sustainable wealth. Why capital formation may lay the groundwork for providing the initial capital, dividend, when reinvested, accelerates the growth of the initial capital, creating a very significant effect that enhances wealth.
“It is important for investors to decide which companies to invest in, so when we focus on dividend paying investment that can offer a balance between good dividend and capital growth in the value of the stock, when we mix this together, we can have a very powerful compounding effect.
“This aligns with the principle of sustainable wealth building, emphasising long term growth, risk management and financial resilience,” he said.
He further pointed put that the foundation of capital formation was a generation of savings, stressing that without savings, there can’t be capital formation.
Describing savings as functions of one’s income that is not consumed, but set aside for future use, he reiterated that any household or individual that did not pull savings together cannot participate in capital formation process.
He said: “Savings are a very critical foundation in capital formation. For businesses, how do you enhance capital formation? Retained earnings, which are profits not disbursed as dividends but kept within the company for future investments.
“Now, once savings are generated, the next step is how they are mobilised. There are different ways of mobilising savings, one way of mobilising savings is when individuals decide to put money in a savings account, or whatever investment in a bank, which then goes to lend out money to entrepreneurs or businesses that require it.
“One other way of mobilising savings is when companies come to the market to raise capital. There are different ways of mobilising savings or accumulating capital by mobilising those savings or excess to areas where they are needed.”
The investment expert also said that financial institutions like banks, credit unions and investment firms played a critical role by facilitating the process of flow of funds from savers to investors.
According to him, “once these savings are mobilised they are then invested in various productive assets.”
While identifying the elements that affect capital formation, he said government policies are very critical in this regard as they significantly influence the process of capital formation.
“For example, policies that promote savings, are retirement savings accounts, they are tax deductible. That means government is trying to encourage us to save so that capital can be mobilised. So tax intensive, subsidy and favourable regulatory environment can encourage both individuals and businesses to save and invest more.
“Infrastructure development, access to roads. Roads that allow farm produce from areas of production to areas of consumption can also facilitate capital formation,” he added.
On his part, one of the panelists, who is the Regulatory Compliance Specialist at the Securities and Exchange Commission, Mr. John Briggs, said capital formation was beyond cash.
He said: “Look at the venture capital, cash comes in to be able to help in that. For wealth sustainability, the capital market is just the best place in terms of the fact that it is where you do medium to long term investment.
“So the regulator is always there to ensure we have a very fair and transparent market. To do that is to ensure that all securities that are traded are expected to be registered by SEC. This is key.
“Those companies that are registered, there are requirements for transparency in terms of regular reporting, which is reviewed. There is also issue of corporate governance, which is key.
“Talking about sustainability, The commission ensures that corporate governance issues are taken seriously, monitored, and of course we have a robust regulatory process.”
Other participants at the webinar were the Chief Client Officer, Coronation Registrars Limited, Chiamaka Ugo-Obidike, who was also a panelist, and Mr. Wole Famurewa, who moderated the programme.
