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The Money Maze TMM Nº 033

Dividends Explained: Yield, Key Dates and Reinvesting (JSE)

7 min

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Dividends explained for JSE investors: cash and special dividends, dividend yield, the last day to trade and ex-date, 20% dividends tax and reinvesting.

Show notes

Dividends are the corporate version of finding money in your jeans pocket. Except SARS already has a hand in the pocket too. Here’s how they work on the JSE, which dates matter, and why reinvesting is where the magic happens.

By The Money Maze | Listen to the episode: Spotify

A dividend is a company saying: “Thanks for owning our shares. We made a profit, here’s a slice.” It’s the investing version of a mate bringing a six-pack because you gave him a lift to the braai.

But not every company pays them. Some reinvest everything into growth. Others, like banks or miners when commodity prices are hot, pay out chunky amounts. Some companies are the uncle who arrives with a good bottle. Others are the cousin who brings nothing and says he’s “investing in his future”.

What is a dividend?

A dividend is a payment a company makes to shareholders out of its profits, usually as cash per share. On the JSE most companies pay twice a year: an interim dividend with the half-year results and a final dividend with the full-year results.

How much gets paid depends on the company’s dividend policy, often stated as a payout ratio, the share of earnings paid out. A company paying out 50% of headline earnings keeps the other half to reinvest.

Types of dividends

  • Cash dividends: straight into your brokerage account. Simple. The boerie roll of dividends.
  • Special dividends: once-offs, usually after a windfall like selling a business. Lovely, but not a 13th cheque. Don’t budget on them.
  • Scrip or share dividends: extra shares instead of cash. Like your aunt giving you socks instead of a R200 note. Useful, just not what you hoped for.

Dividend yield, and its trap

Dividend yield is the annual dividend per share divided by the share price.

Say a company pays R10 a share in dividends a year and the share trades at R200. That’s a 5% yield. Sounds lekker.

Here’s the trap. A high yield can mean the share price has fallen because the market expects trouble. It’s like seeing a bakkie with “Only R20k” painted on the back window. You don’t celebrate. You ask what’s wrong with it. Yields are usually calculated on the last dividend, and if that dividend gets cut, the juicy yield disappears overnight.

The dividend dates that actually matter

Miss these and you’ll be the oke who braais wors with the plastic still on.

  • Declaration date: the company announces the dividend on SENS.
  • Last day to trade (LDT): the last day you can buy and still get the dividend. On the JSE this is usually a Tuesday.
  • Ex-dividend date: the next business day. Buy from here and you don’t get this dividend. You’ve arrived after the chops are gone.
  • Record date: the day the company checks who’s on the shareholder register. It’s three business days after the LDT and normally a Friday.
  • Payment date: the cash lands. Cue the lotto-winner smile at your app.

Why the gap? The JSE settles trades three business days after you trade, called T+3. Buy on the last day to trade and your purchase settles just in time for the record date. Buy a day later and you miss it. That’s also why a share price usually drops by roughly the dividend amount on the ex-date morning.

Dividends tax: SARS at the braai table

In South Africa, dividends tax is 20%, withheld before the money reaches you. On a R100 dividend, you see R80. SARS gets its chop before you’ve even put down the tongs.

Some accounts are exempt, such as tax-free savings accounts, retirement funds and some other categories listed by SARS. Outside of those, expect SARS to be your silent partner on every dividend.

Reinvesting dividends: the compounding magic

Spend your dividends and that’s nice for a weekend. Reinvest them, buying more shares, and those new shares pay their own dividends, which buy more shares, and so on.

Over ten or twenty years, that snowball is enormous. It’s starting with one roll of wors and ending up catering for the whole rugby club. The secret isn’t spending your dividends on pizza. It’s ploughing them back and letting time do the heavy lifting. Many platforms let you reinvest automatically.

Who pays dividends on the JSE?

Banks are traditionally steady dividend payers. Resource companies pay big when commodity prices boom and pull back when they slump, flush in December, broke in January. Retailers, insurers and property funds (REITs) are often in the mix too. There are also ETFs that focus on dividend-paying shares, so you can collect from many companies in one go.

Growth companies often pay little or nothing, because they reinvest. Neither approach is automatically better. It comes down to whether you want income now or growth later.

Stokvel Starter Pack

  • Dividend: your slice of company profits.
  • Dividend yield: annual dividend divided by share price. High isn’t always good.
  • Payout ratio: the share of earnings paid as dividends.
  • Last day to trade: buy by this day to qualify.
  • Ex-dividend date: buy from this day and you miss it.
  • Dividends tax: 20%, unless you’re in an exempt account like a TFSA.
  • Reinvesting: compounding magic.

Takeaway: Dividends are the quiet engine of wealth building. Know the dates, respect the tax, distrust a yield that looks too good, and give compounding the time it needs.

Want the full braai version? Listen on Spotify. And if you’d like the Maze in your inbox, join the free Maze Mail list.

More from The Money Maze

Sources

  1. Dividends Tax, South African Revenue Service.
  2. Equity corporate action guide for retail clients, JSE Limited.
  3. Corporate action timetables (Schedule 2, Form H), JSE Limited.

This is not financial advice.

Transcript

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0:00 Welcome back to The Minimise, the podcast for South African retail investors who want to stop feeling like they're drowning in jargon and start navigating the markets like someone who actually knows what they're doing. I'm your host J, and today we're talking about one of the juiciest, tastiest parts of investing, dividends. That's right, the corporate equivalent of finding money in your jeans pocket. Except SARS has already had their hands in there too. Dividends are basically accompanies way of saying thanks for lending us your cash.

0:29 By buying our shares. We made a profit. So here's a slice of the pie. It's the investing version of someone bringing a six pack to the bride because you gave them a lift. But let's be clear, not every pump company pays the evidence. Some, like Naspers, prefer to keep reinvesting their profits into growth, acquisitions and probably a few expensive cappuccinos. Others, like your big banks or Xaro when the coal prices are hotter than Durban in February, pay chunky dividends.

0:57 So some companies are like that uncle who always shows up as a bottle of something nice, while the others are stingy cousin who brings nothing and says I'm investing in my future. But so there's more ways than one for a company to dish out some dividends. And you've got cash dividends. It's straight into your easy equities account or whichever app you use. Simple, clean investment equivalent of a borough. It's always satisfying.

1:23 Then you've got special dividends. These are one oaths, usually when a company had a windfall, like when your boss suddenly gives everyone a bonus because sales went through the roof. Don't expect it every year though. This is not a 13th check situation. Then you've got stock dividends instead of cash. You get more shares. It's kind of like when you aren't buys you socks instead of slipping 200 Rand note in an envelope.

1:47 All useful, but it's just not what you hoped for. Then there is this ratio people love to throw around at dinner parties to sound clever. The formula is quite simple. Different yield equals annual, different per share divided by the share price. So if MTN pays 10 Rand per share in dividends and the share trades at about 200 Rand a share, that's a 5% yield. Sounds like a right, but here's the trap. High dividend yield might mean the company share prices tanked. It's like seeing a Bucky was a for sale only 20 Kay Painter on the back window.

2:23 You don't necessarily celebrate, you immediately ask what's wrong with it. There's a few dates though that you must know, otherwise you'll be their Oakley's prize voice without taking the plastic off. So you've got declaration dates. That's when a company says we will be paying a dividend. Then you've got the ex dividend date. This is the cut off by before this date and you get a different buy after. And you've basically bought into the bright after all the chops are gone.

2:52 Record date the day the company checks its shareholder list. Think of it like taking row call and then you've got the payment date, they're happy date, the cash actually lands in your account. This is when you check your easy equities app and small wider than a Lotto winner at checkers. And here's where the real magic happens. If you just cash out dividends and spend them, it's nice. But for the short term, if you reinvest them buying more shares, those shares start paying their own dividends and so on. Over 1020 years, that snowball effect is in normous. It's like starting with one roll of voice and ending up catering a whole rugby club.

3:31 The secret source to building wealth has not cashing out your dividends for pizza. It's plowing them back and letting them do the heavy lifting. It's called compounding. South African companies have some big dividend payers. Banks, Firstrand, Standard Bank, Absa. They love paying dividends. Solid and consistent like your granddad's Sunday roast. Resource companies like Exxaro and the old Anglo American Platinum, currently known as Volterra Platinum.

4:00 These guys pay big when commodity prices are booming and go stingy wind markets slump. They like your mate whose flushing December and then completely broke in January and retailers shopright Mr. Price. Sometimes they do, sometimes stingy but generally reliable. And don't forget ETFs. Funds like the Satrix David Plus ETF focus on companies with strong dividend histories, letting you collect pop and voice from across the JSE in one shot.

4:32 Now I'd love to say difference of free money, but no sauce is already set up camp at the broad table in South Africa. Different withholding taxes 20%. That means for every 100 Rand dividend you'll see 80 Rand sauce gets they've cut faster than your cousin hovering over a bright grabbing the first chop. So the only way around it is with certain tax free accounts like at EFSA or a retirement annuity that can shield you.

4:58 But outside of those expects us to be your silent partner in every dividend you earn. Companies that pay dividends are usually stable, established and not chasing hyper growth. Think banks, insurers, telcos. Growth companies on the other hand don't pay difference because they're reinvesting profits. Think of them as their ambitious cousin who spends every Rand on new business idea and jump contracts. So as an investor you decide do you want dividends now or do you want growth later.

5:30 Both have their place and use your stock fell starter pack of stock lingo for today difference your slice of the company profit types, you get cash which is the bully role special Christmas bonus and stock stocks instead of cash. Dividend yield is dividends divided by the share price. Hi isn't always good dates while you've got the declaration, executive record and payment Mr. Estate and you've got no dividends. Reinvesting equals compounding magic. Don't spend it all on pizza.

6:04 The essay twist While banks, resources, retailers and different ETFs, SARS is always lurking, taking 20% before you even taste divorce. And that's the difference in depth South African style, whether you're in it for the regular layouts or the compounding magic of reinvesting, dividends are the quiet engine of wealth building. And while my jokes may be more dire than actual dare jokes, remember this is not financial advice.

6:31 Please do your own research and speak to a licensed advisor.

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