There were many casualties of the Covid-19 Crisis…
Businesses going under, people losing jobs, economies closing down…
But a major casualty for investors were dividends.
Many companies opted to not pay dividends this year. Some cut their payments down by 50% or more.
And while, you can argue it was the right decision for some companies, it was investors who suffered.
The interesting thing is, most of the companies who cut or eliminated dividends, saw their share prices crash.
And it was the opposite for the ones who grew dividends.
Just take a look…
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Three Dividend-Raisers that outperformed in 2020
#1: Sirius Real Estate (JSE: SRE) – Sirius is unique in that it’s the ONLY stock to provide SA investors 100% exposure to the 4th fastest growing economy in the world – Germany…
This has been a key USP that’s immediately attracted many SA and foreign investors. You see, in Germany buildings can be bought at yields of 6%-8%, while the funding costs are below 2% - instantly providing a positive cash flow from day one!
And through the combination of offices, warehouses, conference rooms, small retail outlets and self-storage units, the company has a rich diversity when it comes to tenants and generating consistent rental income.
Obviously, because Sirius operates in Germany, the company generates income in euros. This means, it pays dividends in euros. So, a weak rand means higher dividends. In fact, thanks to a weak rand in earlier in 2020, Sirius was able to grow dividends by just under 3% - not bad considering many property companies halted dividends.
Overall in 2020, Sirius delivered just over 20% return easily smashing the SA Property Index and All Share.
#2: Afrimat (JSE: AFT): Afrimat, has consistently made money and in many years, flourished – All because it shifted away from relying on government and focused on growing the business and enhancing shareholder value.
The company diversified into iron ore – a sector the company wasn’t experienced in. Regardless, its astute investment proved every sceptic wrong!
And with iron prices rising to levels not seen since 2011 – the company is generating tons of cash. That gives it scope to not only pay, but increase dividends. And that’s exactly what the company achieved in 2020.
Dividends grew by over 20%. And its share price delivered a handsome return of +40%. There’s certainly no reason why the company can’t grow dividends again in 2021.
One other amazing example I must mention is fleet telematics and vehicle tracking company, Cartrack (JSE: CTK). Its shares rallied over 100% higher in 2020.
One reason is thanks to double-digit profit and subscriber growth. But another major reason is the company grew its full year dividend by 147% and half-year dividend by 335%!
It’s simple...Increasing dividends signals a great business!
Regular and increasing dividend pay-outs are a real mark of quality... quality of management, quality of business operations and quality of earning
Companies that increase their dividend payments are also telling you their earnings and profits are rising.
They’re saying they’re healthy. If this is the case, you’ll also see capital growth from the share price (just like I’ve shown above).
So, you win both ways!
That’s why the key to making money in 2021 is owning some quality dividend-paying shares.
See you next week.
Managing Editor, Real Wealth