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The dividend season will soon be opening for companies that announce their full- or half-year financial results at end-June. There could be a few interesting results for investors. Dividend farmers – investors who aim at getting three dividends in 13 months – could again be rubbing their hands in glee. The generally strong balance sheets of South Africa’s leading businesses, plentiful cash and low interest rates will hopefully make the payment of handsome dividends the preferred – rather than a grudging – decision.
At the head of companies to watch is, obviously, Remgro [JSE:REM]. As usual, this company has far too much cash – currently more than R6bn – and apparently few opportunities to make use of it. Indeed, it has one of the laziest balance sheets among the Top 40 listed companies. “Lazy” doesn’t refer to its management. A lazy balance sheet is defined as one with too much cash and where no use is made of the benefit of financial leveraging.
Remgro has in the past surprised its shareholders with special dividends to make the total distribution for the year more attractive. It paid special dividends in 2004, 2005 and 2006. However, after the unbundling of its interest in British American Tobacco, the group was far more reticent in paying dividends. For its current financial year ended 30 June a modest interim dividend of 101c/share was declared.
Investors prepared to pay as much as R113 for the share are clearly expecting more than last year’s modest final dividend of 125c/share. The market appears to be thinking, or hoping, for special and final dividends totalling around 400c/share. Along with the interim dividend of 101c, that will give a total of 500c for the year. At its current price of R113, that puts the share on a historical dividend yield of 4%. That’s good, but nothing to get particularly excited about in an environment where several businesses with more dynamic growth prospects than Remgro are trading at levels with similar or even better returns.
Without a special dividend in August of this year, Remgro’s shares now look very expensive and investors may be better off looking for greener pastures elsewhere.
British American Tobacco [JSE:BTI] (BAT) was Remgro’s dividend milch cow in the past but now investors can invest directly in the company, which, in terms of market capitalisation, is still the biggest on the JSE. But there are quite a few niggling concerns related to BAT that investors should understand clearly. The company declares its dividends in sterling and that currency doesn’t buy many rand these days. So what could look like a good increase in terms of sterling becomes reasonably diluted in rand.
Analysts expect BAT to declare an interim dividend of at least 400c/share for the six months to June 2011, to be followed by a final dividend of 1050c early next year. So the total dividend for the share for the next 12 months (or make that 15 months) could be around 1450c/share. That’s still a dividend yield of almost 5%, which is much better than local “fugitives” can earn on their sterling investment on some remote island somewhere. Rather convert your sterling to BAT on the LSE in good time. That’s a much better hedge against a future weaker rand – and perhaps Julius – than sterling itself.
SA’s mining shares and commodity producers haven’t been good dividend payers for a long time. The gold mines no longer earn a profit and it looks as if platinum miners are starting to go the same way. BHP Billiton [JSE:BIL] is still the investment of choice in this sector. However, the company prefers to use surplus cash to buy back its own shares rather than declaring larger dividends. That’s probably good for long-term growth and for bosses’ bonuses but you can’t get away from the fact that investors – especially those in SA – like a dividend. As said before, the new dividend season will produce poor results from South African mining shares and investors would be advised to give them a miss.
SA’s banking sector is also no longer what it was. June is the financial half or full year-ends for all our Big Four banks, and analysts aren’t excited about the sector. So investors should also avoid it. But be careful with the consensus views about the future dividends the Big Four are going to declare over the next year or two.
For example, in the case of Standard Bank (as indicated by McGregor BFA) analysts are currently predicting an increase of 20%/year and more in the group’s profit from 2012 on. That doesn’t look right when Beeld’s panel of economists predict credit extension to the private sector is only going to grow by around 5%/year. The advice is clear: don’t try dividend farming with banking shares this year.
Many of SA’s retailers also have financial half or full year-ends in June and their shares offer investors very good opportunities. Last week we discussed the opportunity offered by Woolworths. In a special report on retailers’ shares last week, JPMorgan also sang the praises of Woolworths. JPMorgan expects Woolworths’ price to rise from the current 3100c to 3800c/share over the next 12 months, while investors can also look forward to a total dividend of at least 160c/share. A dividend yield of more than 5%/year and capital growth of perhaps more than 20% over the next year are certainly things investors wouldn’t want to miss. Go out and buy yourself some Woolies’ shares as soon as possible before its financial results for the year to end-June 2011 are announced.
In its report JPMorgan also sings the praises of the impressive operational cash flow currently being achieved by Mr Price. It’s a dandy share – even though the company didn’t help the Sharks to reach the semis of this year’s Super Rugby. The group’s year-end is only in September, but it’s a share investors would be wise to watch even now.
Several of the smaller listed companies – those with a market value of around R1bn – have their year-ends in June but usually only declare one dividend a year. So keep a lookout for those shares. But remember that in the case of the small fry it’s always better – but riskier – to buy them before their financial results are actually issued, which will probably be somewhere around end-August. Seek out your favourite, check on the latest price trends, see what the board has to say about its prospects (you’ll find that on the latest Sens announcement) and take a chance.
DECLARATIONS
Understand the dates of dividends
Good or bigger listed companies usually declare two dividends/ year. After the company’s interim results – that is, the financial performance of the first six months of the year – are announced an interim dividend is declared. At the end of its financial year, a final dividend for the full year is declared. The final dividend is usually a bit bigger than the interim one.
In South Africa, companies usually declare just less than 40% of their annual profit as a dividend. In the case of retailers it’s much more: up to two-thirds of the profit. Manufacturers – and especially mining companies, where more money is needed for expansion – declare a much smaller portion of their profits as a dividend.
Companies in the United States are generally much less generous with their dividends. For example, Warren Buffett’s well-known Berkshire Hathaway doesn’t declare a dividend at all.
There are three important dates about dividends as far as investors are concerned.
Let’s take Tongaat Hulett as an example. On 30 May it declared a final dividend of 140c/share for its financial year ended 31 March. Along with the declaration of its dividends Tongaat also announced three important dates.
Last day for trading 8 July 2011
Last day for registration 15 July 2011
Date of payment 22 July 2011
For the investor, only the first and last dates are important. The final dividend can be called remuneration for the investors for the financial year ended 31 March 2011. But any investor who buys Tongaat shares before the JSE closes on 8 July 2011 qualifies for the full dividend. Unlike your employer and the salary he pays, you need not work for (or invest in) Tongaat for the full year to qualify for a dividend. Buy the share a few minutes before five on the last day – that is, 8 July – and you’ll qualify for the full dividend. The date of registration is always a week after the last day of trading and is only of importance for the JSE.
In most cases the company also pays the dividend directly into your account at the stockbroker 14 days after the last day of trading. If you read this before Friday, 8 July you could still hurry and buy yourself a few Tongaats. They’re trading at 9000c.
It’s not really an outstanding return and I’d wait for something better later in July, but probably early in August, when there will be plenty of better opportunities.
De Klerk holds shares in Woolworths, Remgro and BAT.
At the head of companies to watch is, obviously, Remgro [JSE:REM]. As usual, this company has far too much cash – currently more than R6bn – and apparently few opportunities to make use of it. Indeed, it has one of the laziest balance sheets among the Top 40 listed companies. “Lazy” doesn’t refer to its management. A lazy balance sheet is defined as one with too much cash and where no use is made of the benefit of financial leveraging.
Remgro has in the past surprised its shareholders with special dividends to make the total distribution for the year more attractive. It paid special dividends in 2004, 2005 and 2006. However, after the unbundling of its interest in British American Tobacco, the group was far more reticent in paying dividends. For its current financial year ended 30 June a modest interim dividend of 101c/share was declared.
Investors prepared to pay as much as R113 for the share are clearly expecting more than last year’s modest final dividend of 125c/share. The market appears to be thinking, or hoping, for special and final dividends totalling around 400c/share. Along with the interim dividend of 101c, that will give a total of 500c for the year. At its current price of R113, that puts the share on a historical dividend yield of 4%. That’s good, but nothing to get particularly excited about in an environment where several businesses with more dynamic growth prospects than Remgro are trading at levels with similar or even better returns.
Without a special dividend in August of this year, Remgro’s shares now look very expensive and investors may be better off looking for greener pastures elsewhere.
British American Tobacco [JSE:BTI] (BAT) was Remgro’s dividend milch cow in the past but now investors can invest directly in the company, which, in terms of market capitalisation, is still the biggest on the JSE. But there are quite a few niggling concerns related to BAT that investors should understand clearly. The company declares its dividends in sterling and that currency doesn’t buy many rand these days. So what could look like a good increase in terms of sterling becomes reasonably diluted in rand.
Analysts expect BAT to declare an interim dividend of at least 400c/share for the six months to June 2011, to be followed by a final dividend of 1050c early next year. So the total dividend for the share for the next 12 months (or make that 15 months) could be around 1450c/share. That’s still a dividend yield of almost 5%, which is much better than local “fugitives” can earn on their sterling investment on some remote island somewhere. Rather convert your sterling to BAT on the LSE in good time. That’s a much better hedge against a future weaker rand – and perhaps Julius – than sterling itself.
SA’s mining shares and commodity producers haven’t been good dividend payers for a long time. The gold mines no longer earn a profit and it looks as if platinum miners are starting to go the same way. BHP Billiton [JSE:BIL] is still the investment of choice in this sector. However, the company prefers to use surplus cash to buy back its own shares rather than declaring larger dividends. That’s probably good for long-term growth and for bosses’ bonuses but you can’t get away from the fact that investors – especially those in SA – like a dividend. As said before, the new dividend season will produce poor results from South African mining shares and investors would be advised to give them a miss.
SA’s banking sector is also no longer what it was. June is the financial half or full year-ends for all our Big Four banks, and analysts aren’t excited about the sector. So investors should also avoid it. But be careful with the consensus views about the future dividends the Big Four are going to declare over the next year or two.
For example, in the case of Standard Bank (as indicated by McGregor BFA) analysts are currently predicting an increase of 20%/year and more in the group’s profit from 2012 on. That doesn’t look right when Beeld’s panel of economists predict credit extension to the private sector is only going to grow by around 5%/year. The advice is clear: don’t try dividend farming with banking shares this year.
Many of SA’s retailers also have financial half or full year-ends in June and their shares offer investors very good opportunities. Last week we discussed the opportunity offered by Woolworths. In a special report on retailers’ shares last week, JPMorgan also sang the praises of Woolworths. JPMorgan expects Woolworths’ price to rise from the current 3100c to 3800c/share over the next 12 months, while investors can also look forward to a total dividend of at least 160c/share. A dividend yield of more than 5%/year and capital growth of perhaps more than 20% over the next year are certainly things investors wouldn’t want to miss. Go out and buy yourself some Woolies’ shares as soon as possible before its financial results for the year to end-June 2011 are announced.
In its report JPMorgan also sings the praises of the impressive operational cash flow currently being achieved by Mr Price. It’s a dandy share – even though the company didn’t help the Sharks to reach the semis of this year’s Super Rugby. The group’s year-end is only in September, but it’s a share investors would be wise to watch even now.
Several of the smaller listed companies – those with a market value of around R1bn – have their year-ends in June but usually only declare one dividend a year. So keep a lookout for those shares. But remember that in the case of the small fry it’s always better – but riskier – to buy them before their financial results are actually issued, which will probably be somewhere around end-August. Seek out your favourite, check on the latest price trends, see what the board has to say about its prospects (you’ll find that on the latest Sens announcement) and take a chance.
DECLARATIONS
Understand the dates of dividends
Good or bigger listed companies usually declare two dividends/ year. After the company’s interim results – that is, the financial performance of the first six months of the year – are announced an interim dividend is declared. At the end of its financial year, a final dividend for the full year is declared. The final dividend is usually a bit bigger than the interim one.
In South Africa, companies usually declare just less than 40% of their annual profit as a dividend. In the case of retailers it’s much more: up to two-thirds of the profit. Manufacturers – and especially mining companies, where more money is needed for expansion – declare a much smaller portion of their profits as a dividend.
Companies in the United States are generally much less generous with their dividends. For example, Warren Buffett’s well-known Berkshire Hathaway doesn’t declare a dividend at all.
There are three important dates about dividends as far as investors are concerned.
Let’s take Tongaat Hulett as an example. On 30 May it declared a final dividend of 140c/share for its financial year ended 31 March. Along with the declaration of its dividends Tongaat also announced three important dates.
Last day for trading 8 July 2011
Last day for registration 15 July 2011
Date of payment 22 July 2011
For the investor, only the first and last dates are important. The final dividend can be called remuneration for the investors for the financial year ended 31 March 2011. But any investor who buys Tongaat shares before the JSE closes on 8 July 2011 qualifies for the full dividend. Unlike your employer and the salary he pays, you need not work for (or invest in) Tongaat for the full year to qualify for a dividend. Buy the share a few minutes before five on the last day – that is, 8 July – and you’ll qualify for the full dividend. The date of registration is always a week after the last day of trading and is only of importance for the JSE.
In most cases the company also pays the dividend directly into your account at the stockbroker 14 days after the last day of trading. If you read this before Friday, 8 July you could still hurry and buy yourself a few Tongaats. They’re trading at 9000c.
It’s not really an outstanding return and I’d wait for something better later in July, but probably early in August, when there will be plenty of better opportunities.
De Klerk holds shares in Woolworths, Remgro and BAT.
