Fin­week Edi­tor Marc Ash­ton re­sponds:

Finweek English Edition - - FEEDBACK -

The first point is that many as­set man­agers just glibly quote any num­ber, and it is a good les­son to in­vestors that they should do some fur­ther in­ves­ti­gat­ing. It also de­pends on when the man­ager was in­ter­viewed, as this may have some im­pact on the ac­tual quoted yield if the share price has moved sharply.

How­ever, the more tech­ni­cal an­swer re­volves around how the yield is cal­cu­lated and whether they are re­fer­ring to an his­toric div­i­dend, a for­ward div­i­dend yield or a con­sen­sus yield.

The his­toric div­i­dend yield takes the full-year fi­nal div­i­dend and di­vides it by the share price. Sa­sol paid a full-year div­i­dend of R19/share. If the Sa­sol share price is R485, then your div­i­dend yield is 3.9%.

The prob­lem with his­toric div­i­dend yield is that in the case of African Bank In­vest­ments Limited (Abil) or Telkom, in­vestors may know that the yield is go­ing to slump, es­pe­cially if the share price has fallen, and this will re­flect as a great yield when in fact it is go­ing to fall.

De­pend­ing on how the for­ward div­i­dend yield is cal­cu­lated, we could say that Sa­sol is ex­pected to de­liver R13.30 (its sec­ond-half div­i­dend) for both halves of the new fi­nan­cial year, which means in­stead of pay­ing R19/share you get R26.60 per share. That gets you a yield of closer to 5.5%.

Ex­cel­lent ques­tion!

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