Dividends, love them but be careful (#502)

JSE Direct with Simon Brown

Simon Shares

• US June inflation 9.1%, and core inflation was also up a 5.7%!
• Still stage 4. Rand continues to weaken.
• Back backs between 4 July 2022 & 8 July 2022
  • Naspers JSE code: NPN) bought 659,095 shares at an average price of R2 648.3315/share for R1.745 billion (US$104.73 million).
  • Prosus (JSE code: PRX) bought 6,240,339 PRX shares at an average price of €67.1361/share for €418.95 million (US$428.59 million).
• SARB now considers cryptocurrencies as a financial asset and will create regulations around them. This means cryptocurrencies can be listed on SA exchange platforms but the process will take 12-18 months.

Dividends, love them but be careful.

• But we also need to remember a few important things about dividends.
• They can disappear as we saw in 2020. Even the most stable dividend payer can stop paying. REITs which have to pay them by law being a REIT structure) stopped paying because payment would see them fail their solvency tests.
• They are backwards-looking. A high dividend yield is certainly attractive, but is it because the price has been falling? Could this be a warning of a dividend cut?
• Cyclical stocks (think commodity stocks) pay massive dividends sometimes, then nothing for years.
• Boards can change the cover ratio. This is the percentage of HEPS they pay as dividends. In tough times they can cut them. As the company matures they pay more.
• Progressive dividends are the worst. The idea is that every year the dividend goes up a set percentage regardless of profits. A few local stocks have tried the idea, all have abandoned the idea.
• Cash dividend vs. script dividend. I'll usually take the script.

• Reg28, proposed a two-pot system
• Sam Beckbessinger: My fav ETFs