Welcome to the third article in the series of articles about share investments. I have not been able to write over the last few days due to a crisis I had to attend to. I hopefully will get through these articles in time for those considering to take up the shares anytime soon.
So what is a dividend? Dividend is the return you make on your investment in shares. If you borrow money from any bank, they charge you interest. Because you are using the bank’s money to do your personal things, you must pay for that. Similarly, by investing your money in shares, you are allowing a company to use your money in accomplishing whatever goals they want and hence they must pay you a fee in return for that. That return is what is know as dividends.
Unlike when you investment in a 32 day account that guarantees a % interest, there is no guarantee that you will get an annual return, as that is declared at the discretion of the company. Companies choose not to declare dividend for various reasons but the primary reason is to re-invest back in the business. The famous example is Microsoft. It took them 17 years since inception before they declared any dividends. So investment in shares requires patience.
When you buy shares in a particular company, you are given a share certificate that how many shares you own. Because different shareholders have different amounts of shares, the companies declare dividends linked to one share. The dividend per shares is normally quoted in cents and hence one needs to read it carefully ( i,e take the cents and divide by 100 to get to a N$ value).
For example, if I have 250 shares, and the company declare 230 cents as dividend per share, I am expecting to receive N$575 in dividend. This is normally paid out in cash , in the bank details you provided when you bought the share. If you change bank account, please update your banking details as your will miss your dividends like I did ( read it here)
The standard bank listing – key features
- You will note that they say a share price is 890 cents. This mean one share is being bought at N$8.90. That is how shares are quoted.
- I saw an extract that you need to buy at least 250 shares. I,e you must be willing to spend at least N$2 225 and above. This is normally there to discourage people from buying less shares that it becomes costly for the company to manage the process. Shares come with admin of printing share certificates that are issued per person buying the shares and hence companies wants to avoid the cases of where the costs of doing all this admin exceed the benefit they get.
- In the 2016 year they declared 53 cents per share as dividends and in 2017 they declared 48 cents per share. So if you had bought 250 shares, you would have made N$ 132.5 in 2016 and N$120 in 2017.
- They have made a constructive commitment to say that they strive to pay out at least 43% of the earnings in dividends subject to cash availability. This means that if the company made a profit of N$ 1 000 000 after it has paid all its taxes, they would reserve at least N$430 000 to distribute to all the shareholders. Assuming that they have 500 000 shares in issue and you bought 250 of those share, you will be expecting N$ 215 as dividends.
- To avoid putting the cash of the company under pressure, they normally pay the dividends 2 times a year. For Standard bank , this will be in November and April each year. So expect to receive N$107.5 in November and N$ 107.5 in December of the following year if you have 250 shares.
The one good thing is that dividends are tax free at the moment. Unlike interest and your salary that you only get after tax, there is no tax attached to local dividends at the moment. This will stay like unless the minister of finance decide to change it.
Are you ready to earn your first dividends?