South Africa: Investor's Dalliance With Dividends

analysis

The appeal of the money-making proposition seems simple and safe: invest in the highest dividend-paying company and sit back and relax, while your monthly cheques roll in. But no. In ensuring a consistent and continuous income stream you'll have to dig much deeper than that.

Warren Buffett has often said that he gives clear preference to companies who tend to pay high dividends and manage to consistently grow these dividend payments over time,

Buffet, or any other value investor for that matter, base investment decisions on the prospects of total return, and dividend yield forms part of that equation. It also includes prospective growth of the actual business plus the trading multiple of the underlying share. This tripod approach clearly works. Buffett's Berkshire Hathaway outperformed the S&P 500 by 10.8% per year from 1965 through 2018, generating an overall gain of 2,472,627% compared to the market's total return of 15,019%.

Ironically Berkshire Hathaway itself has zero dividend policy and prefers to reinvest all of its earnings for growth, but the dividend stocks in his portfolio are best of a breed and his retained focus on high-quality businesses trading at reasonable prices will continue to pay off.

Lourens Coetzee, investment specialist...

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