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Leading investment manager Daniel Malan of Re:CM says that dividends were an important consideration for investors.
"If you look at investments over 100 years, you will find that two-thirds of your return-on-capital comes from dividends."
Dividends are not only rewarding, they also act to reassure shareholders.
"An increased dividend is a signal to the market. Companies are reluctant to cut them," says Feroz Basa, a fund manager of the Old Mutual Investment Group's (Omigsa) high-yield fund.
A high-yield fund aims to generate superior returns for investors by investing in high dividend-yielding funds.
According to Basa, by reinvesting dividends into your investment portfolio, one would have returned 10 times more than on capital growth alone since 1960.
Basa believes that many South African companies have managed their balance sheets smartly. This means they have excess cash that can be returned to shareholders.
Sounding a note of caution, however, Basa says: "Things are tough out there at the moment and companies are looking to cut costs. But dividends are the last thing that they are likely to cut."
Although management often tries to protect the company's share price by pleasing shareholders with dividends, this might not always be prudent, said Malan.
Construction leading charge
Cash-flush building and construction stocks led the charge in the last week with Basil Read reporting a 66% increase in its interim dividend and Group Five increasing its interim payout by 42%.
Property shares, bought for their income-producing characteristics, have seen smaller increases.
Madison Property Fund Managers posted an 8.3% increase in its dividend; ApexHi Properties lifted its quarterly distribution 5%, and its annual distribution 18%. The dividend flow would continue, said Madison.
When announcing its quarterly financial results, ApexHi said it expected to see continued distribution growth in 2009. It also anticipated further growth in distributions from the "C" units.
Said ApexHi CEO, Gerald Leissner: "The company expects rental income to grow by 11%, which is a combination of escalations in existing leases of between 8% and 12%, increases of 15% as a result of future renewals and costs escalating by 12% for the year".
Despite the influence of equity markets on their operating performance, the financial sector stocks, such as Old Mutual and Liberty Group, lifted their dividend yield by 6.5% and 13% respectively.
"The dividend increase reflects our strong capital position and the board's confidence in Old Mutual's prospects," said Jim Sutcliffe, CEO of Old Mutual.
Shareholders in Mutual & Federal received a special dividend of R1.35 earlier in the year and investors had the opportunity to pick up capitalisation shares as well.
Retail also good
Meanwhile, companies in the retail and financial sector offer very attractive forward yields, said Basa.
"Lewis is on an attractive forward dividend yield of 8.6 times earnings," he said. Woolworths Holdings was "interesting" because it had a 5.2 forward dividend yield, plus an additional R1 special dividend. This pushed the stock up to 15 times earnings rating.
In July, Delta Electrical Industries made a R2.29 payment to shareholders as a result of good cash flow generation and chairman Todd Atkinson said that there would be additional distributions during the course of the year.
While shareholders have been on the receiving end of a beating in terms of equity prices, strong cash flows have rewarded investors with improved dividend flows.
* The author holds both Apexhi B and C units.
- Fin24.com
