Dividends: Reaping what you know
We suspect market rally in 2009 was sustained mainly by handful of top stocks.
The dividend yield table for this year’s Top 200 makes for exciting reading – at a cursory glance – in that it suggests punters were raking in the big bucks in 2009.
But was that indeed so?
The table shows 100 companies finished 2009 on dividend yields in excess of 5%.
In 2008 only 39 companies managed that, while there were 38 companies pushing yields of +5% in 2007.
Dividend yield explained
A dividend yield is calculated by dividing the annual dividend paid by a company by its share price.
In other words, if a company pays a dividend of 8c/share and its shares are trading at 120c on the JSE then the yield is 6.6%.
Once again – as with earnings multiples and earnings yields – the dividend yield is a historic measure, in that it calculates the yield using the last declared annual dividend and the current share price.
So a high dividend yield might suggest the market is anticipating a generous payout.
On the other hand, it could signal a waning share price, which would normally indicate earnings pressure and a possible change in dividend policy.
A rule of thumb would suggest a dividend of 5% would normally be considered generous.
But dividends often depend on circumstances.
For example, high growth companies usually need to retain capital, which precludes a generous payout (if a dividend is declared at all).
More mature companies – that generate cash and don’t have to spend excessively on development – tend to pay higher dividends.
Also to consider
To add to the issue is the fact some companies offer shareholders an option of a scrip dividend (although that isn’t as common these days as a decade ago) and more than a few companies prefer to pay capital distributions rather than dividends (Spur Corporation, springs to mind).
Then there are the special dividends: one-off payments to shareholders that might arise if a company has an excess of capital (and no opportunities on hand) or if a windfall has arisen (from the sale of an asset, investment property or subsidiary).
A number of highly ranked companies – cash shell Woolies is a good example – owe their positions to the declaration of a special dividend.
But let’s go back to our original consideration about whether 2009 was really a year of massive dividend flows.
An interesting statistic gleaned from the annual results commentary from top-rated investment company Foord Compass was that dividends paid in 2009 on the JSE all-share index declined by a whopping 36% from a year ago.
Foord Compass reckoned that was the biggest single annual decline in dividends in 50 years on the JSE.
With that in mind, we might presume the abundance of high yields on our Dividend Yield table can be explained by a marked fall in the market (ie, lower share prices would automatically flatter yields).
But no: the JSE all-share index actually rose by around 30% in 2009.
So what gives here?
We suspect the market rally in 2009 was sustained mainly by the handful of stocks (BHP Billiton, Anglos, SABMiller, Impala Platinum, etc) that rebounded markedly last year.
For the most part, the multitude of smaller and mid-cap companies didn’t see a meaningful recovery and some even took a turn for the worse.
Drop in share price
If we examine the Top 200 table it’s plain to see the top rungs are occupied mostly by small to mid-cap companies.
In other words, companies that paid dividends but in all likelihood saw their share prices static or drifting down.
One might suspect more than a few of those “high yielding” rankings might be cutting or holding back their dividends to shore up balance sheets in the current economic climate.
The biggest surprise is accorded to low-key lubricants manufacturer Spanjaard (ranked third).
One might suspect that “superior” dividend ranking stems from a special dividend declaration, but the truth is that Spanjaard paid a massive 85c/share in dividends in 2009.
With an illiquid share that’s ranged recently between 280c and 380c that’s a useful yield.
But Spanjaard’s rather weak interim performance suggests a payout of similar proportions in its 2010 financial year is highly unlikely.
New kids on the block
Most encouraging is that despite the economic downturn a number of regular small cap companies – identified in the last few Top 200 surveys – have retained their dividend status.
Those would include our favourite “tech trio”: Compu-Clearing (10.3%), ISA Holdings (10.87%) and Datacentrix (10%).
Interestingly, the best yield from a property company came from SA Corporate Real Estate Fund, with an impressive 11.73%.
It was also heartening to see a few newer listings ranked near the top of the table: Huge (10.19%), Amecor (12.2%), Mazor (12.5%), Insimbi (14.4%), Mix Telematics (10.26%) as well as quarterly dividend paying TeleMasters (13.79%).
But can the “newbies” keep it up?
To view the Dividend Yield Table, click here