Right now, there's one JSE listed company who has a dividend yield of 57%.
That's unheard of in JSE listed companies. But it's true.
In fact, it could be one of, if not the highest dividend yield I've ever come across from a JSE listed company.
Just consider this…
The JSE All Share's dividend yield is just over 3%. This means, the company has a yield nearly 20x higher than the average JSE share!
So for investors wanting to generate income, this looks like a mouth-watering investment opportunity, right?
Don't be fooled by this stocks' high dividend yield.
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The share price tells a different story
As you know the dividend yield is just a company’s annual dividend divided by its current share price. Right now, JSE listed Rebosis, who owns shopping centres and office parks, is trading at around 163c. In 2018, it paid a 93c dividend. Divide these two numbers and you get 57%.
However, when you see a company with an extremely high dividend yield, something must have happened i.e. the company’s share price has crashed.
In the case of Rebosis, it was the worst performing property fund on the JSE in 2018, losing 68%!
Even worse, since the start of 2018, Rebosis shares have fallen from 972c to 163c today – over 82% drop.
So what happened?
A triple whammy of events smacks Rebosis’ share price
Firstly, in April 2018, CEO of Rebosis, Andile Mazwai resigned unexpectedly. Shortly after the announcement, its shares fell nearly 11%.
Then in November 2018, Rebosis reported its worst set of results since listing seven years ago.
Brexit uncertainty caused the valuations of Rebosis’ UK associate New Frontier’s properties to decrease significantly. Consequently, New Frontier said it would not pay Rebosis a dividend for the year to August.
On top of this, its overall property portfolio valuations declined by 3.9% to R18.09 billion.
The R1.77 billion reduction in fair values resulted in a R924 million loss for the year.
This forced Rebosis to trim its full-year dividend by 27.7%. And, shareholders who invested in Rebosis for its dividends, reacted negatively to its poor results, and its shares crashed 25%.
Finally, in February 2019, Global Credit Ratings (GCR) downgraded Rebosis’ short and long term credit rating with both being placed on “Rating Watch, with negative implications”.
The reasons for this was because of the company’s continued breach of certain debt agreements. For instance, its loan-to-value (LTV) ratio rose from 46.1% to 51.6% driven by high debt and decreasing property valuations. Lenders usually don’t fancy loaning to companies with a high LTV ratio, as it comes with high risk. However, if they approve a loan, it will usually cost Rebosis more.
Another concern is the company has a substantial R5 billion debt which matures at the end of May 2019.
To alleviate this debt, Rebosis has offloaded its office parks to focus on shopping centres, which are more profitable. It’s already sold nearly R2 billion worth of office property. However, GCR believes the company is still a high risk until its LTV and debt improves.
Is it worth buying Rebosis now just for the 57% dividend yield?
The short answer is not yet.
Although Rebosis is taking steps to reduce its debt and keep its balance sheet in check, the company isn’t out of the woods yet.
I expect Rebosis to cut its dividend again this year and potentially going forward until it returns to profitability with less debt. And this may only happen in 2020. So in short, don’t be fooled by the 57% dividend yield.
See you next week,
Managing Editor, Real Wealth