Looking Back: On Safaricom

Looking Back is a series of blog posts dedicated to looking back on the last 10 years in the Nairobi Stock Exchange. Peter has been analyzing the performance of these stocks on his Twitter timeline and has graciously allowed us to convert his tweets into posts for your reading.

If you’d invested 100,000 shillings in Safaricom exactly 10 years ago, your investment would be worth 1.46M today! Over that period the stock has returned 30.75% per annum comprising of:

• Price appreciation (price increase) of 25.89% on average per year; and
• Dividend return of 4.86% per year.

As depicted in the price chart below, Safaricom has mostly been on an upward trend, with insignificant dips along the way.

Safaricom Price Chart (2009 – 2018)Their dividend record is as per the table below. It may not look like much, but bear in mind the fact that the share price was below 10 shillings until 2013.

This is a breathtaking performance by any standard – it is almost impossible to find any other asset that has done better locally.  By comparison, Amazon, arguably one of the best global stocks has returned about 37% per annum over the same period. If you bought the minimum number of shares allowed – 100 in mid 2009 at KES 2.8 which was the price back then, you’d have spent KES 2,800. Without adding a penny and only reinvesting dividends, the 2,800 shillings invested would have been worth about KES  40 887 today!

That said, very few people realised the 30.7% return rate shown here. The price chart looks very nice and predictable with hindsight. In real life, It’s a roller coaster as new prices unfold every day that you have invested. A number of things could prevent you from consistently making money from the stock market:

1. Fear: This is where the price of a stock goes down, and in trying to “cut your losses”, you panic and sell. Or where the prices are down and it is a great time to buy, but you instead hold back because you are afraid of buying then the price falls.
2. Greed: This is the “get rich quickly” mentality that leads us to get into investments that are not good value. A good example of this was the dot.com bubble of the 90s, where tech companies that created no value listed for crazy prices and people bought stocks.
3. Failure to reinvest your dividends: A lot of us treat dividends like a windfall, which is best spent on something nice 🙂 The problem with that approach is that we then lose out on the benefit (or the magic) of compound interest. By re-investing our dividends, we are putting them to work at the same rate at which the stock is growing.

Are there people who actually made money from Safaricom? Yes! Harry invested KES 250,000 in 2010, and is now sitting on 1.3 million shillings.

I bought my safaricom stock 9 years ago.. Was actually buying when they were dirt cheap and there was a mass sell off from most retail investors. pic.twitter.com/LD1z3dtN72

— HARRY (@hkaranih) May 30, 2019

Have you joined the #52WeekChallenge powered by M-Shwari? To join, set up an M-Shwari Lock Savings Account, start saving and you just might get a cash reward. As I post this, we are kicking off Week 24 of the #52WeekChallenge, use the MoneyBox App (for Android) to calculate how much you are supposed to save on a weekly basis and start today!