eBusiness Weekly
Taking Stock
Kudzanai Sharara
This week I received a certain amount of money into my bank account. At first I could not figure out the source of the money. I had not provided any service or product to anyone where a payment was outstanding.
The only money I was expecting was my salary, but it was not due as yet. The figures did not match as well, so it couldn’t be.
Then I remembered an email I had received a few days earlier. It read:
“Good day,
Please find attached the EFT advice slip for Zimplow Limited for dividend number 75.
Regards,
Investor Services, Corpserve Registrars.”
I have a few shares in Zimplow, and in its last set of results, it had declared a dividend of 10,48 cents (ZWL) per share payable in respect of all issued ordinary shares of the company.
“This dividend is in respect of the year ended 31 December 2020 and will be payable in full to all shareholders of the Company registered at the close of business on 18 June 2021.
“The payment of dividend will take place on or about 21 June 2021,” read the dividend announcement from Zimplow.
Dividends are periodic payments made by companies to owners of its stock. They are paid per share.
The payments may be done through cash, or additional shares in the company known as dividend in specie.
For example, for every Zimplow share that I own, I received 10,48 cents (ZWL). The more shares I own; the more dividend income I get.
After making a profit, a company can decide to keep the profit, reinvest it into the business, or share some of it with those who own an equity interest in the company (their shareholders).
While capital gains or share price appreciation provide more lucrative returns as seen with the gains recorded on the Zimbabwe Stock Exchange (ZSE), where the overall value of shares has gone up by 126 percent year to date, dividends represent additional return on investments.
Investing in stocks with dividends allows shareholders to receive a regular income from their equity investment while continuing to hold the stock to profit further from appreciation in the share price.
A dividend becomes a regular income as the stock price moves up and down in the market. Dividends are money in hand while the stocks rise and fall in the market.
Granted, at the moment dividend yields of ZSE listed stocks look very insignificant, (most are below 3 percent) they would be worthwhile when inflation slows to single digit levels.
So in other words, dividend payments are part of the total return on investment in a stock that an investor owns.
Most companies that regularly issue dividends, do so twice a year (when they release their half year or full year results.)
Receiving a dividend does not necessarily mean the shareholder has to spend it out of the market. There is scope to also reinvest that dividend and enjoy what is known as the power of compounding (when your reinvested dividend start earning income).
When companies make regular dividend payments, it is also an indication that they are managed more efficiently.
Companies that have a long track record of making dividend payments are usually large-cap, well-established firms (e.g., Delta, Innscor, National Foods). Their stock prices may not offer huge percentage gains that may be seen in the stock prices of younger companies but tend to be stable and provide steady returns on investment over time.
Dividend paying stocks usually hold up better in bear markets than non-dividend-paying stocks and are commonly subject to less volatility.
However, investing in dividend stocks alone may mean missing out on potentially high returns as we have seen with share price gains witnessed in Unifreight (up 8 172,2 percent year-to-date), NTS (up 4 435,5 percent year-to-date), GB Holdings (up 1 497,5 percent year-to-date)
In the end, the question of whether to be investing in dividend stocks or non-dividend stocks is best answered by considering individual financial goals and planning and the overall investment strategy, taking into account factors such as risk tolerance.
An ideal stock portfolio can thus be composed of a mix of some companies that pay dividends and some that don’t. One of the ways of coming up with a good portfolio mix is to buy into companies that are considered good investments, regardless of current stance on paying dividends.
