Sometimes it’s fun to pore over balance sheets and cash flow statements in search of that 10-bagger stock — the one that transforms your meager nest egg into a comfy cash cushion.
But let’s face it.
You usually have more enjoyable things to do on a weekday evening or Saturday afternoon.
That’s why exchange traded funds (ETFs) are one of the most useful tools in an investor’s toolkit. ETFs collect dozens, sometimes even hundreds, of different stocks into one tidy, trade-able, low-risk package.
An ETF for South African income investors
Launched in April 2014, the Divtrax ETF mirrors the performance of the S&P South Africa Dividend Aristocrats Index.
What’s a dividend aristocrat? Well, definitions vary, but for the purposes of this index, it is any South African stock that has increased or maintained a stable dividend for the past five years.
If a company reduces or suspends its dividend payment, the S&P boots it from the index.
This simple screen generates impressive performance.
Over the past five years the SA Dividend Aristocrats Index posted a gross annualized return of 22.5%. That figure far exceeds the market as a whole, which notched a 17.4% return over the same span. Year to date, the Divtrax ETF is up 11.8%.
At present, 26 South African shares call the index home. Roughly a third of them operate in the financial sector, another third are consumer goods companies, and the remainder is a mishmash of industrials, telecommunications, health care, and IT companies.
It tends to be very light on mining stocks due to their inconsistent dividend payouts, and it specifically excludes companies whose main business activity is to invest in real estate.
The ETF holds each constituent of the index in equal weights and re-balances them in July each year.
Here’s a list of the top ten holdings with their current weight in the portfolio:
- Capitec Bank (CPI:SJ) – 6.37%
- Foschini Group (TFG:SJ) – 4.98%
- EOH Holdings (EOH:SJ) – 4.89%
- Sanlam (SLM:SJ) – 4.89%
- Standard Bank Group (SBK:SJ) – 4.81%
- Truworths International (TRU:SJ) – 4.76%
- Naspers (NPN:SJ) – 4.68%
- Netcare (NTC:SJ) – 4.52%
- The Spar Group (SPP:SJ) – 4.52%
- Discovery Holdings (DSY:SJ) – 4.45%
One of the most attractive features of the ETF, of course is the quarterly dividend. As of this writing, it sported an annual dividend yield of 2.86%.
And with a maximum annual management fee of 0.46%, investors get to keep the lion’s share of those dividends. South Africa’s other dividend ETF, the Satrix Divi Plus (STXDIV), charges a 0.71% management fee.
So, if you:
- prefer not to spend your time slogging through a valuation spreadsheet,
- like a quarterly dividend,
- and love the prospect of a steady market-beating gain from a basket of blue chip South African stocks, take a look at the Coreshares Divtrax ETF and then get back to enjoying your life.
If you’re new to South African ETFs, I highly recommend that you pay a visit to etfSA.co.za. They’ve got comprehensive coverage of all ETFs and exchange traded notes available to JSE investors and a host of educational articles to get you up to speed on how they work.
It’s your turn
Do you invest in ETFs? If so, let us know your favorite in the comments!