How to Use P/E Ratio and Dividend Yield When Buying Stocks on NGX (Practical Guide)
Many Nigerian investors lose money by buying stocks based on hype. This practical guide explains how to use P/E ratio, dividend yield, and 52-week high/low to identify fairly priced NGX stocks and invest smarter, even with small amounts
Yahnic Chigozie
Stop Guessing and Start Investing with Sense
Every stock goes through seasons:
Sometimes it’s cheap
Sometimes it’s expensive
If you learn how to read P/E Ratio and Dividend Yield, you’ll spot the cheap buys before most people and stop losing money.
Let’s break it down in a way anyone can understand.
1. P/E Ratio: Are You Paying Too Much?
P/E Ratio simply answers this:
How much am I paying compared to what the company is earning?
📌 When the price is high compared to earnings → overhyped
📌 When the price is moderate compared to earnings → reasonable
Practical Example (Current Price)
Take Presco Plc — trading around ₦1,450 per share on NGX right now. (NGN Market)
If Presco earns, say, ₦150 per share yearly, its P/E would be around 10. That’s fair. If the P/E were 40, you’d be paying way too much for each naira the company makes.
Rule of Thumb:
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P/E < 10 → undervalued
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P/E 10–15 → fair
-
P/E > 25 → expensive (unless the company’s earnings are growing fast)
👉 Short: The
P/E ratio helps you decide if a stock is cheap, fair, or expensive before you buy.
2. Dividend Yield — How Much Cash Does the Company Pay You?
Dividend yield shows:
How much money the company pays you yearly for holding the stock.
How It Works (Example)
If Presco pays ₦50 per share annually, and the current price is ₦1,450, that is about 3.4% dividend yield.
Meaning:
-
For every ₦100 you invest, you get ₦3.40 back each year
-
That’s cash in your pocket for holding shares
Compare Another Stock
Zenith Bank is trading around ₦63 per share.
Zenith is known for consistent dividends and strong earnings. If Zenith pays, for example, ₦5 per share annually, its dividend yield is around 8% — which is great for income investors.
Rule of Thumb:
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Dividend > 5% → attractive
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Dividend 3–5% → moderate
-
Dividend < 2% → don’t buy if price is already high
👉 Short: Dividend yield tells you how much “thank you money” the company sends you for holding shares.
3. 52-Week High & Low: Are You Buying Little or Too Late?
Knowing the 52-week high and low is like checking the temperature.
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If Presco’s 52-week low is ₦475 and its high is ₦1,550 → its current price ₦1,450, is near the top.
-
If Zenith’s 52-week low is ₦43 and high is ₦78.50, and the current price is ₦63, it’s somewhere in the middle.
How to Use This Info
✔ If price is near the low → better buying zone
✔ If price is near the high → buy small or wait for a dip
📌 This helps you avoid buying after the big rise — which is a common beginner mistake.
How to Use All Three Together (Simple Checklist)
Before you buy any NGX stock, ask:
-
Is the P/E ratio fair?
(Are you paying too much for earnings?) -
Is the dividend yield attractive?
(Will this stock pay you decent cash?) -
Is the price closer to its 52-week low than its high?
(Are you buying at a reasonable level?)
If YES to most → consider buying
If NO to most → rethink or buy smaller
Smart Buying Strategy: Naira-Cost Averaging (NCA)
Smart investors don’t put all their money in at once.
They buy “small-small” every month:
-
₦5,000
-
₦10,000
-
₦20,000
If the price dips tomorrow, they don’t cry.
If the price rises, they smile.
This strategy is called Naira-Cost Averaging: a method that reduces risk and builds wealth slowly.
Mama Ngozi explains it best:
“Buy am small-small make e no pain you.”
Why Many People Lose Money
Not because the market is bad.
But because they:
❌ Buy based on hype
❌ Ignore P/E ratios
❌ Forget dividend yield
❌ Buy at top prices
Investing becomes a gamble when logic is missing.
Final Words
If you can answer these three questions before buying:
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Is the P/E fair?
-
Is the dividend good?
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Is the price near low or high?
…you’ll already beat 99% of people in the market.
Investment is not for “big men in agbada”.
If you can spend ₦10k on shawarma, data, or outings…
You can invest the same ₦10k into stocks that pay you back for life.
Even Mama Ngozi now owns shares — she doesn’t speak finance grammar, but she knows:
“If my money no dey sleep again, e must be working.”
Don’t fear the market, fear ignorance.
Start small, learn as you go, and let time and compounding work for you.
