Look To Retail Bonds For Cash Flow When Dividends Disappear

It’s likely that many companies will not be paying out ordinary dividends due to the economic fallout of Covid-19. Simon Brown offers advice for investors that need to supplement this income they will be losing.

- Simon Brown

Capitec’s* annual results for the year ended 29 February teach us two important things right now. Firstly, while they were excellent, results to 29 February of this year are meaningless. Anything before Covid-19 became a pandemic is interesting but tells us nothing about the next few years.

The bigger point is the disappearing dividends. Headline earnings per share was up 19% but the dividend was cancelled. If we take the 2019 final dividend of 1 120c per share and increase it by 19%, that would have been 1 332c. But dividends are disappearing fast. Earlier in April the Prudential Authority of the South African Reserve Bank (SARB) requested local banks not to pay “dividends on ordinary shares and no payments of cash bonuses to executive officers and material risk takers … in 2020”.

This makes sense. Sure, Capitec and the other banks have strong balance sheets and very adequate capital adequacy ratio requirements.