Happy with handouts
SA firms stick with disbursing dividends
WHILE SHARE PRICES have taken a dip in line with the world’s equity markets – and CEOs are talking down their prospects for the rest of the year – South African companies remain confident enough to reward shareholders with increased dividends.
Leading investment manager Daniël Malan, of RE:CM, says dividends are an important consideration for investors. “If you look at investments over 100 years, you’ll find that two-thirds of your return on capital comes from dividends.”
Dividends aren’t only rewarding but 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 at Old Mutual Investment Group’s high-yield fund. A high-yield fund aims to generate superior returns for investors by investing in high dividend-yielding funds.
Basa says by reinvesting dividends into your investment portfolio, you’d have returned 10 times more than on capital growth alone since 1960. He says many South African companies have managed their balance sheets smartly. That means they have excess cash that can be returned to shareholders.
However, sounding a note of caution, Basa says: “Things are tough out there at the moment and companies are looking to cut costs. But dividends are the last thing they’re likely to cut.”
Although management often tries to protect the company’s share price by pleasing shareholders with dividends, that might not always be prudent, says Malan.
Cash-flush building and construction stocks led the charge over the past 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, says Madison.
When announcing its quarterly financial results, ApexHi said it expected to see continued distribution growth next year. It also anticipated further growth in distributions from its “C” units. ApexHi CEO Gerald Leissner says: “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, 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,” says Old Mutual CEO Jim Sutcliffe. Shareholders in Mutual & Federal received a special dividend of R1,35 earlier this year and investors also had the opportunity to pick up capitalisation shares.
Meanwhile, companies in the retail and financial sectors offer very attractive forward yields, says Basa. “Lewis is on an attractive forward dividend yield of 8,6 times earnings.” Woolworths Holdings was “interesting” because it had a 5,2 forward dividend yield, plus an additional R1 special dividend. That 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.
from fin24.com Ashton holds shares in ApexHi B and C units
Good prospects. Gerald Leissner