I often write about dividends because I love the cash flow, but also, they’re an important part of an investment’s return. Dividends also help to show the true health of a company. Currently we’re seeing super dividends from the commodity miners with Anglo American Platinum (Amplats) and Kumba Iron Ore respectively paying 100% and 99% of their headline earnings per share (HEPS) as a dividend to shareholders.
For investors this means billions of rands that will flow into their accounts which they can either spend or deploy into the same or other investments. Those holding unit trusts or exchange-traded funds (ETFs) with these shares in the funds will also receive bumper dividend payments the next time the unit trust or ETF pays out dividends.
In the case of Kumba and Amplats the dividend was equal to about 10% of the share price when it was declared and this seriously boosted investors’ returns. On the day after the last day to trade (LDT – the date on which you need to own the share at market close to receive the dividend) the stock will likely fall by the same amount as the dividend. But in this case both shares have risen by more than the dividend so shareholders will still be ahead. Further, after the dividend payment the stock will move up again to regain the dividend amount. So, in time the dividend is a net positive for the share’s overall return.