A Guide to Investing in Shares in Kenya
Shares in Kenya are a great way to invest for the future. You can buy shares in a company that is doing well, or you can buy shares in a company that is about to do well.
Shares are units of equity. Shares exists as a financial asset in some companies providing for an equal distribution of any residual profits, if any are declared in the form of dividends.
Shareholders of a stock that pays no dividends do not participate in distribution of profits. Instead, they anticipate participating in the growth of the stock price as company profits increase.
The two main types of shares are; common shares and preferred shares.
Types of shares
In case of a limited company with several shareholders having various amount of money invested, different types of shares can be allocated with different ownership rights and conditions. These types tend to be:
1. Preference shares
They do not offer price appreciation but can be redeemed at an attractive price and offer regular dividends. They entitle the owner to receive a fixed amount of dividend every year which is usually a percentage of the nominal value.
2. Ordinary / common shares
They are the most common. They enable voting rights and possible returns through price appreciation and dividends.
Common shareholders have a right to vote on corporate issues and are entitled to declared common dividends. They are paid out last in the event of bankruptcy after debt holders and preferred shareholders.
There are different classes of ordinary shares that a company can create known as alphabets.
They impact on shareholders
- Entitlement to dividends
- Entitlement to capital on winding up/disposal
- Entitlement to votes
3. Non-voting shares
They are primarily directed at employees so that remuneration can be paid as dividends for the purposes of tax efficiency for both parties. In addition to that, they carry no right to vote and no right to attend general meetings.
they are issued on the terms that the company may buy them back at a future date. They are commonly given to employees so that if employee leaves, the shares can be taken back at their nominal value.
5.Cumulative preference shares
they give holders the right that, if a dividend cannot be paid one year, it will be carried forward to successive years. These dividends must be paid, despite the earning levels of the business, provided the company has profits that can be distributed.
Below is a detailed information about the shares classes:
- Entitlement to dividends – shares can have a right to a normal dividend, a preferential dividend, a dividend to be distributed in certain circumstance or no dividend at all.
- Entitlement to capital on winding up/disposal – This means that, any assents left after all debts have been paid off can be distributed to shareholders. However, different classes of share may have different rights to capital distribution.
- Entitlement to votes– this can be as simple as shares either carrying voting rights or not, but sometimes weighted or tired votes are possible in certain circumstances.
In Kenya you can invest on shares that are listed and traded in the Nairobi Stock Exchange Market (NSE). The benefits of investing in shares is that a well-diversified portfolio of shares will earn you dividend annually for a lifetime. The dividends are paid in proportion of the shareholding; you get paid depending on the number of shares you have. They are traded daily during the trading hours (9:00 Am to 3:00 Pm) Monday to Friday with exception of holidays.
Requirements to start trading shares
Investing in the Nairobi Stock market does not require a high capital since there are companies shares that are trading from as little as sh 2 bob. However the minimum number of shares you can have is 100 shares.
A CDS is an electronic form that holds all shares of an investor. To open a CDS account is free. You can open it through the stock broker you choose, from a bank or the Central Bank of Kenya. To open a CDS account one requires the following:
- Copy of your National Identity Card
- A KRA PIN
- Two passport size photographs
- A CDSC form which your agent or bank provides. It carries all your information (address, name, your preferred mode of receiving dividends, whether you are an individual or a company and the account number)
Below is a step by step guide on how to open a CDS account:
Once you are done providing all the requirements, your details are verified and an account is generated. This is the account, which you will buy, store and sell your shares. Any bank or broker can access it.
Identify a Stockbroker
NSE (Nairobi Securities Exchange) recommends the use of stockbrokers or a bank in buying and selling shares. It appropriate to go through the list of approved stockbrokers on NSE website to make your best choice.
You can choose one from a list of the many licensed stockbrokers by the Capital Markets Authority. They include commercial banks, investment banks and brokers’ firms.
To get the best stockbroker, look at their regulation status, licenses, the services that they provide, the fees that they charge, their expertise and the trading platform that they offer.
Funding your CDS account
With a CDS account and a broker, now you need to fund your account in readiness to purchase shares in the trading circles.
Placing an Order
At this point, you know the price of shares and the number of shares that you want to buy. Here, you will have to visit a bank or your favourite stockbroker or an online broker approved by NSE. Still you can buy the shares online via the bank’s online portal or through your stockbroker’s app without filling any forms.
Once the purchase is successful, your shares are credited to your CDS account. The bank can generate a printout for you showing the date and number of shares that you bought.