The Satrix Divi exchange-traded fund (ETF) has been one of the most popular tools among investors over the last few years as they have sought dividends to bolster their portfolios. However, with a yield of around 2.9% on the basket, there is some cynicism about its ability to deliver the best income return.
However, communications specialist Grant Henry from Communications Advisory, who is neither a representative of Sanlam nor Satrix, alerted Finweek to an interesting piece of research he had done on the ETF that might suggest the product is offering value. According to Henry’s research, the forward dividend yield on the current basket of Satrix Divi shares is 5.9% and the 1-year forward earnings multiple is around 11 times earnings.
Henry calculated this by taking 1-year forward analyst earnings consensus fore- casts. As the basket stands right now, of the 30 stocks there are 15 sitting with “buy” recommendations on them, 14 with “Hold” and a single stock with a “Sell” recommendation (Foschini).
He does however acknowledge that these numbers are slightly skewed by the contributions of the likes of African Bank Investments Limited (Abil) and JD Group. Presently Abil (with a forward dividend yield of 15% and a forward P/E multiple of 3.4) and JD Group (10% and 5) are expected to trim their dividends going forward as earnings come under pressure. However, by Finweek ’s calculation you still get an overall yield of around 4% and a P/E of 13, which is roughly in line with historic returns on the JSE.
The two highest forward P/E multiples for the ETF are Coronation (20 times) and Woolworths (19.6) while the lowest forward dividend yields (according to analyst consensus) in the basket are Gold Fields (3.7%) and Woolworths (3.8%).
For investors who are worried that the capital growth ref lected in shares over the last year is unsustainable, they could look at the Satrix Divi ETF as a nice way to hedge themselves. If businesses are looking to return excess cash to shareholders, then who are we to argue?