Happy with hand­outs

SA firms stick with dis­burs­ing div­i­dends

Finweek English Edition - - Companies & Markets - MARC ASH­TON

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

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