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The proverbial mattress is stuffed with cash. When money market funds are returning less than the average savings account and everybody else is stuck waiting for Greece to flinch, nobody is rushing to place their hard-earned pennies in an investment vehicle. Since 2009, more than a spectacular US$4 trillion has disappeared globally into the black hole of zero-return, cash-based funds. So how to beat the bank rate? Or at the very least inflation?
Capital growth was appealing back when excitement reigned and caution was for sissies. Now the flavour of the month is to be conservative, with a fixed income return and a liquid market looking increasingly appealing. Enter property companies. Case in point is the Public Investment Corporation (PIC)’s massive push to increase its exposure to South Africa’s property sector. Government’s pension fund managers have grown their property portfolio from around R3bn to more than R27bn over the past seven years. Pension funds are largely behind the importance of income yields compared to good old capital returns, as they’re tax exempt. Even though individuals pay tax on property dividends (called distributions) it’s still a viable consideration. Listed property companies are delivering a distribution of around 8%.
“Property stocks are not risk-free. But people are comparing the 3% to 4% they can get from a money market fund to the 8% to 9% return from a property investment,” says Anton de Goede, of Coronation Fund Managers. De Goede says smooth entry into the property sector is via a property unit trust in listed property. “Through a unit trust you have access to a diversified portfolio and the expert knowledge of property analysts. Another benefit is you can initiate a debit order to put as little as R500/month into the unit trust,” he says. A stokvel into the listed property sector is another option.
A high dividend yield portfolio takes a little more love and care to create than just throwing some money at Growthpoint. However, dividends are tax free and likely to get bigger over time. “Work with your broker or use your online trading facility to narrow down the shares to invest in a portfolio of around five shares,” says Simon Brown, of JustOneLap, an online education portal for investors and traders. “That will concentrate risk to a large extent but it also means a smaller cost of transaction.”
Brown narrows down the shares on the JSE to those with a historic dividend yield of more than 5%, have a market cap above R5bn and a consensus dividend growth forecast of more than 20%. Though that leaves you with only a handful of shares, combined they should offer a yield of around 6% and more than 12% in five years, he says. Brown says that’s for those looking for income: you’re not looking for the share price to move or for capital growth.
Although property is the safe bet, your distribution growth will track inflation and rentals. That doesn’t make for shoot-the-lights-out returns. If your time horizon is longer, dividends from a high yield portfolio will be much higher. And they’re not taxable.
INVESTOR TIPS
Making cash work for you
Proptrax Ten: If you want exposure to the entire property sector this is perhaps one of the easiest and most cost-efficient ways to invest in the major players. The tracker fund is an equally weighted index portfolio, based on the Top 10 property companies on the JSE. You’ll need to open a stockbroking account and, yes, that means you have to be Fica’d. A management fee of 0,45% is charged.
PROPERTY UNIT TRUSTS: Coronation Fund Managers, Stanlib and Catalyst Fund Managers are among the better known property unit trusts in the sector and are outperforming the run of the mill unit trust offerings. Unit trusts are well regulated, liquid (so you have access to your money within 24 hours) and competitive, as there are so many offerings out there.
DIVIDEND PORTFOLIOS: If you don’t have access to the information, get some help. Follow the JustOneLap steps but also take into account some stocks have an obligation to continue their dividend policy (such as PPC, thanks to an empowerment deal technicality) or are perhaps not the best performing share on the JSE (think Hudaco) but will maintain their dividend policy. “Dividends are an incentive from the company to investors to keep holding its shares,” says Simon Brown.
SATRIXDIVI: The Satrix Divi appeals to investors seeking yields, as dividends are paid four times a year. The current yield is only 3,12%. However, companies’ dividend yields grow on average by 20% a year: the longer you hold it, the higher your return will be.
COMPOUNDING YOUR MATTRESS MONEY: The ultimate trick up an investor’s sleeve is reinvesting dividends and reaping the compounded benefit.
Capital growth was appealing back when excitement reigned and caution was for sissies. Now the flavour of the month is to be conservative, with a fixed income return and a liquid market looking increasingly appealing. Enter property companies. Case in point is the Public Investment Corporation (PIC)’s massive push to increase its exposure to South Africa’s property sector. Government’s pension fund managers have grown their property portfolio from around R3bn to more than R27bn over the past seven years. Pension funds are largely behind the importance of income yields compared to good old capital returns, as they’re tax exempt. Even though individuals pay tax on property dividends (called distributions) it’s still a viable consideration. Listed property companies are delivering a distribution of around 8%.
“Property stocks are not risk-free. But people are comparing the 3% to 4% they can get from a money market fund to the 8% to 9% return from a property investment,” says Anton de Goede, of Coronation Fund Managers. De Goede says smooth entry into the property sector is via a property unit trust in listed property. “Through a unit trust you have access to a diversified portfolio and the expert knowledge of property analysts. Another benefit is you can initiate a debit order to put as little as R500/month into the unit trust,” he says. A stokvel into the listed property sector is another option.
A high dividend yield portfolio takes a little more love and care to create than just throwing some money at Growthpoint. However, dividends are tax free and likely to get bigger over time. “Work with your broker or use your online trading facility to narrow down the shares to invest in a portfolio of around five shares,” says Simon Brown, of JustOneLap, an online education portal for investors and traders. “That will concentrate risk to a large extent but it also means a smaller cost of transaction.”
Brown narrows down the shares on the JSE to those with a historic dividend yield of more than 5%, have a market cap above R5bn and a consensus dividend growth forecast of more than 20%. Though that leaves you with only a handful of shares, combined they should offer a yield of around 6% and more than 12% in five years, he says. Brown says that’s for those looking for income: you’re not looking for the share price to move or for capital growth.
Although property is the safe bet, your distribution growth will track inflation and rentals. That doesn’t make for shoot-the-lights-out returns. If your time horizon is longer, dividends from a high yield portfolio will be much higher. And they’re not taxable.
INVESTOR TIPS
Making cash work for you
Proptrax Ten: If you want exposure to the entire property sector this is perhaps one of the easiest and most cost-efficient ways to invest in the major players. The tracker fund is an equally weighted index portfolio, based on the Top 10 property companies on the JSE. You’ll need to open a stockbroking account and, yes, that means you have to be Fica’d. A management fee of 0,45% is charged.
PROPERTY UNIT TRUSTS: Coronation Fund Managers, Stanlib and Catalyst Fund Managers are among the better known property unit trusts in the sector and are outperforming the run of the mill unit trust offerings. Unit trusts are well regulated, liquid (so you have access to your money within 24 hours) and competitive, as there are so many offerings out there.
DIVIDEND PORTFOLIOS: If you don’t have access to the information, get some help. Follow the JustOneLap steps but also take into account some stocks have an obligation to continue their dividend policy (such as PPC, thanks to an empowerment deal technicality) or are perhaps not the best performing share on the JSE (think Hudaco) but will maintain their dividend policy. “Dividends are an incentive from the company to investors to keep holding its shares,” says Simon Brown.
SATRIXDIVI: The Satrix Divi appeals to investors seeking yields, as dividends are paid four times a year. The current yield is only 3,12%. However, companies’ dividend yields grow on average by 20% a year: the longer you hold it, the higher your return will be.
COMPOUNDING YOUR MATTRESS MONEY: The ultimate trick up an investor’s sleeve is reinvesting dividends and reaping the compounded benefit.
