There's an old saying on Wall Street that says, "Profits are a matter of opinion, but dividends are a matter of fact."
And simply put - I believe too few investors are giving sufficient attention to many of the incredible dividend paying stocks on the JSE…
If you're like me, into fast moving high return shares, you know its even more difficult finding small cap companies that pay a dividend.
At this stage in a company's growth trajectory, cash flow is usually either too erratic or is immediately put into growing the company.
However, there are those rare small cap jewels that offer dividends and in many cases, these companies offer dividends DOUBLE and TRIPLE the JSE's average dividend yield!
Why should you care about dividends at all?
Imagine this… You could’ve bought Capitec shares at R26 a share in 2008.
During the past year the company paid investors R13.25 in dividends. That means 50% growth on your original capital JUST FROM DIVIDENDS.
If you add up all the dividends since 2008, investors received R60.43 in dividends. That’s 232% growth from dividends alone.
In fact, a study of dividends and returns on shares on the JSE since 1967 shows that dividends account for 46.9% of the total returns investors make on the market.
Considering that this is possible – you should at least consider the fact that dividends play a central role in indicating value, and growth potential of a share…
If you ignore dividends, you ignore HALF of the money to be made on the JSE!
Finding the true diamonds in the rough
There are more than 390 shares on the JSE with market caps lower than R10 billion. My typical cut-off point for small cap, and penny shares…
Of these only 111 are penny shares that pay dividends.
And if you want a meaning full dividend of say 5%, the list shrinks to a mere 24 shares!
The reason there are very few small cap stocks paying dividends isn't some unknown mystery. Smaller companies usually pour any excess cash back into the business to help it grow, rather than distributing it back to shareholders.
So it's no surprise that typical investors buy small cap stocks for capital appreciation and big gains. Very rarely are they sought for dividend income.
But that doesn't mean it's impossible to grab the best of both worlds.
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A handful of big dividend payers selling at even bigger discounts right now
In my Red Hot Penny Shares portfolio, I hold a number of big dividend paying penny shares, all of which are selling at big discount’s to what they are worth.
Consider the following examples:
Dividend payer #1: Metrofile
The company is on a dividend yield of 6.58%. The share price could increase 100% and the share would still have a higher than average dividend yield. What’s more, the company has grown the dividend without interruption since 2011, it has low debt, high cash levels and growing profits!
Dividend payer #2: Merafe
The company just announced its final dividend of 9cps, bringing the company’s full year dividend to 12cps. On its current share price of 157c, that means a dividend yield of 7.6%, making the company one of the ten best dividend-paying shares on the JSE (excluding preference shares and REITs). Merafe also managed to grow earnings per share from 21.2cps to a whopping 36.4cps in the past year. That puts the company on a PE ratio of 4.3!
There are many more examples of big dividend payers like these to consider. Value Group, for instance, is on a dividend yield of 5.9%, Pan African Resources has a yield above 6% and shares like Argent, Bowler Metcalf, Anchor Group and Sygnia have all been very strong dividend payers in the past!
Remember, if you ignore dividends, you ignore HALF of the money to be made on the JSE!
Here’s to unleashing real value