What's up with dividend funds?

[Kudu biltong]

Hello, I'm new here as a member but I've been reading quite a while. But anyway, I've had a question on my mind for some time now and I hope someone can enlighten me. So if you go to a fund administrator or a shop like Satrix who offer a dividend basket/ETF, they normally pay out only like 5.5% dividends per year. However, there are around 50 dividend-paying stocks on the JSE who pay out between 6% and up to 30%(Merafe, who have paid a huge dividend for many years). So why would it be that these DivX baskets don't have high-yield dividend stocks, but rather seem to just be a copy of regular ETFs that also pay out 3% to 5%? And if you look at the high dividend payers, they're not fly-by-night operations, we're talking Exxaro, Merafe, Absa, Africa Rainbow Minerals, Coronation, Kumba, etc.

Dankie, luister by die radio,

 

[Icarium]

Something like the Satrix DivI ETF uses the JSE Dividend+ index, which tracks a basket of 30 companies based on forecast dividend yields.

The caveat is that the JSE Dividend+ doesn't just look at forecast dividends, it also looks at market cap and liquidity. This means that something like Merafe is probably not in the basket because it's a borderline "small cap" company. This also eliminates a lot of the smaller companies that you'd find on your list of top 50 companies by dividend yield.

Once you eliminate the small cap companies and the outliers that beat forecasts by a significant margin you're not left with a heck of a lot of companies with truly high dividend yields. Yes, you've listed about 5 of the best (ignoring Merafe because it's probably too small to be considered for the index) but once you get down to the lower ends of the basket of 30 you're already looking at companies with dividend yields closer to 4%.

And that's based on *actual* dividend yields. One you factor in that there will be companies that declared higher than expected dividends that won't be in the 30 stocks selected you're looking at companies in the basket doing less than 4% dividends yields.

If you average out the dividend yields of the top 30 performing mid/large cap companies you are probably looking at an average dividend yield of 6% or less, which is what you're seeing in the ETF performance.

 

[Speedster]

I personally am a fan of divi ETF in TFSA. I think you get quite a bit more bang out of them when the dividend tax is exempted.

 

[Kudu biltong]

Something like the Satrix DivI ETF uses the JSE Dividend+ index, which tracks a basket of 30 companies based on forecast dividend yields.

The caveat is that the JSE Dividend+ doesn't just look at forecast dividends, it also looks at market cap and liquidity. This means that something like Merafe is probably not in the basket because it's a borderline "small cap" company. This also eliminates a lot of the smaller companies that you'd find on your list of top 50 companies by dividend yield.

Once you eliminate the small cap companies and the outliers that beat forecasts by a significant margin you're not left with a heck of a lot of companies with truly high dividend yields. Yes, you've listed about 5 of the best (ignoring Merafe because it's probably too small to be considered for the index) but once you get down to the lower ends of the basket of 30 you're already looking at companies with dividend yields closer to 4%.

And that's based on *actual* dividend yields. One you factor in that there will be companies that declared higher than expected dividends that won't be in the 30 stocks selected you're looking at companies in the basket doing less than 4% dividends yields.

If you average out the dividend yields of the top 30 performing mid/large cap companies you are probably looking at an average dividend yield of 6% or less, which is what you're seeing in the ETF performance.

Okay at least this would explain it. It sounds reasonable from their perspective.

 

[PowerFactor]

You must check what they paid out in the past. Many of the JSE stocks will pay you a dividend but that is based on the company performance and how they are doing in the marking.

 

[longboy]

Dump all those imaginary 1's and 0's on a server and buy gold/silver coins and bullion.

 

[PowerFactor]

I personally am a fan of divi ETF in TFSA. I think you get quite a bit more bang out of them when the dividend tax is exempted.

That tax exemption on dividends only apply to local ETFs.

 

[Kudu biltong]

Dump all those imaginary 1's and 0's on a server and buy gold/silver coins and bullion.

But how am I going to get a passive income from physical gold and silver? I am looking to generate an income here, not really looking at growth. I have an RA with my employer for that. What I want is something that pays me money every 3 to 6 months which I can either reinvest OR buy performance parts for my car. Whichever seems more appropriate at the time.