Dividends are an important consideration in an investment strategy, especially for those nearing financial independence. A well-considered dividend strategy can ensure tax-efficient income without needing to sell any investments.
The CoreShares Divtrax ETF (DIVTRX) includes South African listed companies that have paid a dividend for at least seven consecutive years. Should a company in the ETF fail to pay a dividend for even one year, it is dropped from the ETF.
Dividends are often expressed in terms of dividend yield. That means the dividends paid to shareholders is expressed as a percentage of the share price. In theory, a higher dividend yield percentage represents a bigger dividend payment, but this isn’t the case when a company’s share price drops.
For example, if a company’s share price is R100 and it pays a dividend of R10, the dividend yield is 10%. However, if the same company’s share price drops to R50, the dividend yield suddenly goes up to 20%, even though you are still only getting R10. The Divtrax ETF avoids using dividend yield and rather considers the rand amount of dividends, so you know exactly how much was paid to investors over the last five years.
It’s important to remember that past performance is not an indication of future performance. These companies are included based on dividends paid in the past, but a company can decide not to pay a dividend at any point, in which case they’ll be removed from the ETF.
The dividends pay out in March, June, September and December.
Weekly expert: Warren Ingram
Every week we ask an independent industry expert to delve a little deeper into each ETF. This week, Galileo Capital’s Warren Ingram shares his thoughts on the Divtrax.
What sets the CoreShares Divtrax ETF apart from other ETFs?
This ETF is aiming to invest your capital in companies that have a history of paying dividends for a minimum of seven years. The focus is on the actual amount of the dividend rather than the percentage. This is important because some companies will have a high dividend percentage because their share price has lost a lot of value. The other dividend ETFs use forecasts to determine the companies to be included in the ETF. In addition, each company in DIVTRX is given an equal allocation.
What limitations should investors be aware of?
The portfolio is likely to be volatile and you can go through periods of time where you lose money. However, over longer periods of time, patient investors are likely to be rewarded.
What type of portfolio would most benefit from holding this ETF?
This ETF is a good compliment to a portfolio that requires income, long-term capital growth or where the other parts of the portfolio are very specialised, for example those who are invested only in resources or small companies etc.
Unpacking the CoreShares Divtrax ETF
| ETF name | CoreShares Divtrax |
| ETF JSE code | DIVTRX |
| ETF issuer | Coreshares |
| Issue date | 14 April 2014 |
| ETF TER* | 0.47% |
| ETF benchmark | S&P South Africa Dividend Aristocrats Index |
| Tax-free savings account | Investment allowed |
| ETF major holdings | EOH Holdings, Firstrand Limited, Discovery, Mr Price Group, RMB Holdings, Absa Group Limited, Sanlam Limited, Nedbank Group, Truworths, Standard Bank Group. View the full list here. |
| Market cap* | R300m |
| Performance | 1 year -2.8%
3 year +3.7% |
| Dividends | 3.5% |
| What we like | This ETF doesn’t limit its investment to the Top 40 or Midcap index, which means investors get exposure to companies outside of the popular Top 40 ETFs. |
