Before a penny share makes its way into our Red Hot portfolio, it must offer excellent value, solid sales growth, consistently improve earnings and be in a strong cash position. When I find a share that satisfies each of these criteria, I know I’m on to a winner!
But there are plenty of other factors I consider too. One of the key fundamental measures I look at is how much, and how frequently a company rewards its loyal shareholders. That’s why today, I’m going to talk to you about the importance of the “forgotten” return.
It’s the single best way to get your slice of company profits!
What am I talking about? Dividends, of course.
The forgotten return in a penny share
Typically, a company will reward its loyal shareholders twice a year.
First, it’ll pay interim dividends halfway through each financial year and then a final dividend at year end.
“What’s so special about a dividend?” you ask. Well, a dividend is your share of company profit and it’s paid only if the directors feel it’s a good idea to do so. (That’s an important thing to understand about dividends: They’re NOT guaranteed.)
The main reason I consider dividends in my system is for the “WoW” factor. After all, I believe dividends are a nice bonus, but they’re not essential in growth companies, and I certainly don’t expect them over the short-term periods we may be invested for.
Top dividend payers litter our penny share portfolio
But if dividends are up for grabs, I’m more than happy to stand in line and take my share. If you look at our portfolio, you’ll find more than a handful of shares paying very handsome dividends. In fact, we have three excellent dividend payouts coming our way in October from Bowler Metcalf, Attacq and SA Corp – all three stocks are part of our Red Hot Penny Share Portfolio.
Caxton will pay 60c/share in December. Attacq will cough up 69c/share in October. And Bowler will pay 37.8c/share on the 28th of October.
By far my favourite Red Hot dividend payer right now ranks right up there on the JSE “Dividend Super League”. This penny stock company has paid consistent dividends over the past three years adding. And today it sits on a yield of +25%!! (Red Hot subscribers added this stock to their Red Hot Portfolio last month but there is still time to get in –you can get the details here.
The best part about this penny stock is it promises super growth upside and a dividend that is in line with the best “blue chip” shares on the market!
The importance of dividends revealed…
The magic of dividends is they work for you in the background, much like compound interest. They also add to the total return on any investment.
If your share price moves up from 100c to 125c over six months, you earn a capital return of 25%. But say this company pays a 5c dividend three months in, your total return is now 30%! (equal to the capital return of 25% and the dividend return of 5%). Just goes to show you how lucrative those “forgotten” returns really are!
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