If you’re looking for great stocks that trade on the JSE that pay out a high great dividend yield, then look no further. I’ve done some research on a bunch of stocks and managed to filter them down to 31 of the best companies, (in my opinion) that you might recognize right here in South Africa.
|Stock:||Dividend Yield:||UPDATED COMPANY INFO:|
|ABSA GROUP LIMITED||11%||VIEW|
|EXXARO RESOURCES LTD||11%||VIEW|
|THE FOSCHINI GROUP LIMITED||10.4%||VIEW|
|LIBERTY HOLDINGS LTD||10%||VIEW|
|KUMBA IRON ORE LTD||9.8%||VIEW|
|MTN GROUP LTD||9.6%||VIEW|
|OLD MUTUAL LIMITED||9.3%||VIEW|
|AFRICAN RAINBOW MIN LTD||8%||VIEW|
|HOMECHOICE INT PLC||7.7%||VIEW|
|TRUWORTHS INT LTD||6.9%||VIEW|
|BRITISH AMERICAN TOB PLC||6.58%||VIEW|
|VODACOM GROUP LTD||6%||VIEW|
|OCEANA GROUP LTD||5.6%||VIEW|
|MR PRICE GROUP LTD||5%||VIEW|
|STANDARD BANK GROUP LTD||4.8%||VIEW|
|THE SPAR GROUP LTD||4.3%||VIEW|
|PICK N PAY STORES LTD||4.1%||VIEW|
|MOMENTUM MET HLDGS LTD||3.9%||VIEW|
|RCL FOODS LIMITED||2.8%||VIEW|
|ASTRAL FOODS LTD||2.8%||VIEW|
|SHOPRITE HOLDINGS LTD||2.7%||VIEW|
|TIGER BRANDS LTD||2.6%||VIEW|
|WOOLWORTHS HOLDINGS LTD||2.5%||VIEW|
|CLICKS GROUP LTD||1.9%||VIEW|
|DIS-CHEM PHARMACIES LTD||1.39%||VIEW|
Are ALL Dividend Stocks Worth It?
Before you start buying some, it’s really important for you to know what makes a dividend-paying company worth buying. Dividends are like a double-edged sword.
In the right hands of excellent management, it can be used as a tool to reward investors.
In the wrong hands, however, dividends can be used by management for the wrong reasons—to inflate the stock price for short term price gains, which can ultimately hurt the business which doesn’t add any value to the company’s underlying value.
There are two things you need to look out for to judge if its worth it:
01. Look at company growth.
Since buying a stock is in a sense buying a small company, you should question why management is paying out dividends in the first place. To give you a sense of how you can spot a company that is making the right decision, I’ve mentioned one of my favorites below.
Coca-Cola—a great example of a dividend-paying company that did it right.
Coca-cola doesn’t just taste great, it’s also arguably one of the most successful companies in the world. Which is why it’s so loved by one of the worlds best investors—Warren Buffett.
The company started its initial public offering on the stock market in 1919, and they only issued their first dividend share in 1963, which is a whopping 44 years later. And, they have been increasing their dividend yield ever since. This my friend, is a sign of great management. Why?
Management should always keep investors’ best interests in mind. Which boils down to a ‘return on investment.’ To do this, free cash flow should be invested differently at the different stages of the business’s growth.
As Peter Lynch put it, a business generally has three different stages of growth.
- Fast-growers. Generally when a business is new and is growing around 20% to 25% (which will be your return on investment.) In this scenario, a business manager should make the decision to NOT issue dividends, because they know all free cash flow should be invested into more growth.
- Stalwarts. As the business expands the growth begins to naturally slow down to around 10% to 12%. Since business growth has decreased, management will make the decision to begin paying out dividends to increase an investor’s return on investment. Coca-coal is currently in this category.
- Slow growers. At this point, a company has maxed out its growth and is merely beating the growth of the U.S economy. To compensate, more dividends should be paid out to investors.
In summary, good management would increase dividends as the company’s growth begins to decrease to compensate for the decreasing yield. The reason why management will do this is that there is nowhere else to invest earnings that will give the investor a better yield than dividends.
02. Look at dividend history.
Once you’ve found a company that looks like it could be a great investment, make sure you check its dividend history. If you’re investing in a stock just because of their dividends, you need to be confident that the dividends they’re paying out are growing annually, and they should be consistent.
Back to the coca-cola example. Coca-cola has been paying out and increasing its dividends annually for 57 consecutive years which makes it an extremely safe investment since they have such a clean track record. These are the hidden gems you should be looking for.
What should you do? Look at your stocks 10-year dividend history, and this will give you a sense of if its sustainable, or not. However, when diving into these reports, keep in mind that over recessions companies might choose to not pay out dividends which is a great decision by management.
Why Do REITS (Real Estate Investmen Funds,) Pay Out So Much Dividends?
By law, REIT companies are required to pay out 90% of their taxable income to their shareholders, which makes it a great opportunity if you’re looking to diversify into dividend stocks. However always do your due diligence, REIT companies still need to be valued corrects, so make sure you don’t overpay for the stock. Here’s are a few REIT companies in South Africa.
|Stock:||Stock Price:||Dividend Yield:||Dividend Per Share:||UPDATED COMPANY INFO:|
|VUKILE PROPERTY FUND||R7.78||34%||R2.64||VIEW|
|FORTRESS REIT LTD B||R3.40||47.77%||R1.48||VIEW|
|SA CORP REAL ESTATE LTD||R1.35||30%||R0.38||VIEW|
|FORTRESS REIT LTD A||R1.48||11%||R1.48||VIEW|
Now that you know when a company SHOULD be paying out dividends, you’ll be able to spot if a company is paying out dividends for the wrong reasons.
YOUR TURN: Have you come across another dividend-paying company that’s great? Let us know in the comments below so that we can all learn from each other!