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Dividend yield shares


Is it wise to buy some of these shares out there just for divident yield? If you use the share filter I see there is some shares that has over 10% divident yields. Would make a good part of one's portfolio to have a few of these to get some extra cash in now and then.



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Regular Contributor

I think the danger is at the other end of the yield spectrum - and its weird - well for me anyway. Bonds offer low or no or negative yields - so a consistent divvie payer with a great business is an alternative..( or is it ?)

But this fact then causes people to chase these - and so quality companies get chased up in price - until they are expensive - again  made possible by cheap money on the one hand and negative yields on Govt bonds on the other. So quality companies become the inverse of what you are actually looking for. That  in turn forces those who have set their hearts on this approach to either pay a lot ( risky) or to go further down the feeding chain - and  that brings more risk to the table. Things are cheap for a reason. If they are underpriced its one thing but that is not the same as being cheap?

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Valued Contributor

The trick is the quality of the DY, often times a high DY is because of falling share price that is expecting a dividend cut. Exaples of once great DY stocks that have fallen; PPC, KIO, ARL and so on. Some may return but for a while it was bleak.


So we need dividends that are strong and likely to remain, my pick is Metrofile (MFL) which I hold. VOD worth keeping an eye on if the price falls back, CLI maybe another? VLE is great but tough headwinds in this economy and CMH is awesome but I always expect something to go wrong and it never does.

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New Contributor

Then there is the alternative view that the Government will tax dividends increasingly higher.  Tax on dividends went from 10% to 15% and is now at 20% - that is it doubled in just over 4 years. 


As the failures of the current regime is increasinglylaid bare, the population is becoming restless and impatient.  The Government's solution to the need for extra money is a desperate scramble via borrowing locally and internationally, and raising taxes.  Rather than fix the broken system, they have opted to increase taxes and rates on almost every occassion.  The new Radicle Economic Transformation would need to be funded.  So would the National Health Fund.  Tertiary education would need to be subsidised (those student loans will never be paid back to NaSFAS).  More low cost houses will be built by Local Government by increasing rates.  The ever increasing social obligations (child grants, feeding schemes at school, and now at Tertiary education facilities) would have to be funded.


I get what Simon has said about dividends.  They used to historically be an indicator of a healthy company with good investability.  Overseas, this is possibly, even likely still the case.  In South Africa however, I think an investor needs to be slightly more circumspect.  Companies that pay out a dividend have less cash to deploy, and consequently their valuation should be adjusted downwards.  Unless you need the income, the after tax cost of dividends to your portfolio may be a drawback.


Also, a high dividend yield (for example in the REITs and Property funds) often reduces capital appreciation.  In my experience anyway.  So be wary.  By merely looking at one number (dividend yield), you may get a higher income (and pay more tax), but the capital growth may be stifled.  


There is lots more I could tell you but...just remember the general investing common sense in South Africa does not hold true in the same way as it does abroad.  The same applies to buying residential properties as an investment class.  SA operates to a different, artificial set of rules.



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