Disappearing dividends (#545)

JSE Direct with Simon Brown

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Disappearing dividends

Just this week Spar (JSE code: SPP), MultiChoice (JSE code: MCG) and Telkom (JSE code:TKG) have all cut dividend to zero.

We had big dividend payer Coronation (JSE code: CML) drop theirs to provision for the SARS fine and historically good dividend payer Pick n Pay (JSE code: PIK) reduce theirs.

This shows the pain that companies are experiencing, not all, but certainly some, It perhaps also shows quality, for example Shoprite* (JSE code: SHP) increased their dividend.

The problem is we love dividends for cash flow and they tend to grow ahead of inflation, sometimes well ahead of inflation. They're also taxed better than traditional income from bonds or cash (albeit not as low as CGT). But the downside is that any dividend can disappear at any time.

For investors such as myself, reduced dividend is not a big problem. I like the cash flow but don't need the income for expenses. For those living on dividends the pain is real. If the income is required you need a good amount of bond and cash investments and REITs that aside from the pandemic pay consistently, albeit REITs reduced over the last 5 or 6 years.

Another option is something like dividend aristocrats (we have a local and offshore ETF for these). Here we have companies with decade long track record of paying dividends, but remember Steinhoff (JSE code: SNH) was in the local dividend aristocrat ETF, so even this is not guaranteed. But a basket or ETF works well.

Simon Shares

• US CPI for May 4.0%, lowest since March 2021.
• Latest IEA global oil market outlook: peak oil combustion by 2028?
  • Petrol demand to peak this year
  • Road transport oil demand peak 2025
  • All transport by 2026
  • Overall oil for combustion peak 2028
• ZAR 18.33

• Massive moves expected in Richemont (JSE code: CFR) on Thursday 15 June as the index rebalances. Could see ±R4billion of selling.

* I hold ungeared positions.

Simon Brown