Johannesburg — LAST week, when writing about British American Tobacco (BAT), I commented that the shares were attractive for investors seeking dividend income return. I didn't want BAT shares and suggested that Hudaco , which is one of the counters in the Private Investor portfolio, could well be attractive on its dividend return.
On Wednesday, Hudaco revised its trading update on expected earnings for the year ended November 30 2009. Back in October, based on the trading results for the first 10 months of the financial year, the expectation was that headline earnings and normalised earnings per share would decline by 20%-30% compared with the previous financial year. The expectation now is a decline of 15%-22%.
Based on the October trading update, I guesstimated that dividends for last year could be down to 300c, from 400c in 2008. At the share price then of R64, the expected dividend yield for last year was 4,7%.
On the latest update, my guesstimate for dividends for last year has been revised to 320c. The share price at Wednesday's close was R61, on which the yield is 5,24%.
Hudaco is expected to publish its year-end results on or about today. My guesstimate is, therefore, something of an academic exercise - all may already have been revealed.
No doubt, too, I will have something to say on the company's results next week.
I've already written several times on high-income-yielding shares as an attractive alternative to interest-bearing investments such as government bonds and fixed deposits. I've emphasised that interest income is hit by both tax (save for the tax-exempted amount) and the effect of inflation. This doesn't imply that investing in high-dividend income equities carries
Decades ago, long-term investors used to buy gold shares for dividend income. The amount of the dividend that would be paid by a gold-mining company was, in most cases, earnings after costs of capital expenditure, royalties and tax. The main risk, apart from the volatility of the gold price, was the ore reserves.
The grade of ore available was an important investment fundamental in assessing forward earnings and dividends. Mining houses - the controlling companies of the mines - followed different strategies.
Anglo American, for example, tended to mine ore at low, but still cost-efficient, grades while Gold Fields would plump for quicker profit by mining higher grade ores. As an investor in mining shares you had to accept the ore body could well be exhausted over time. The mine's expected life was an important investment fundamental. The prize for long-term investors was dividend income.
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This is, of course, no longer the case. Harmony's historic dividend yield is minuscule. Gold Field s' is 1,2% and AngloGold's is 0,38%. Investing directly in gold doesn't provide an income at all - and so, why not buy gold-mining shares for the same reason you would buy Krugerrands or NewGold - for possible asset appreciation?
The answer, of course, lies in the share price performance of the gold-mining companies relative to the performance in bullion. The JSE gold mining index over the past 10 years has just more than doubled to 2272 from 1074. In the same period, the price of a Krugerrand has increased more than fourfold to R8600 from R1760. I also know that the dividends from the mining companies have not compensated for the nil income on the coins.
