JSE dividend portfolio paying monthly

Simon Brown Latest, Retire, Uncategorized

Monthly Dividend Portfolio

Monthly Dividend Portfolio

When the household wallet is getting the squeeze, having an additional source of income to supplement your retirement income is a real win. As we’ve seen in previous blog posts, these sources of income can be a hobby that earns you a bit of cash or an extra room in your house or second property that you can rent out. 

Another option for an additional source of income is a portfolio that receives monthly dividends. Simon shared this neat idea in his newsletter, which led to a number of JOLers enquiring about the details of such a portfolio

In this blog post, Simon explores the theoretical possibility of constructing such a portfolio for the local market.

We also have a post looking at offshore ETFs that pay monthly dividends.


Go for stable

What’s really important is that you only want stable dividend payers. This means no cyclical commodity stocks and the like. Sure, they have great dividends right now, but they’ll disappear when the cycle turns down again. It’s also worthy to keep the biggest investing lesson from the pandemic in mind: Even the most stable dividend can vanish in a heartbeat.

Bonding with bonds

One easy option is RSA Retail Savings Bonds. They’re currently offering a 10% fixed return for 5 years (you can reset it higher if rates rise). The issue here is that you’re earning interest and as such, it’s taxed as income above the exemption limits (R23 800 per year for taxpayers under the age of 65, R34 500 per year for taxpayers aged 65 years and older). There is also no capital appreciation so the amount paid every month remains the same. This means it’s ultimately falling behind inflation. To fix this they have inflation-linked bond that offers CPI + growth. Here the capital grows at CPI and interest on that capital is then paid out.

As mentioned, bonds have the drawback of tax on interest paid and listed REITs (Real Estate Investment Trusts) pay income directly. So depending on your tax situation the 20% tax on dividends may be a better option to reduce your tax liability every year.

Choose wisely

Selecting the companies to invest in needs to be based on quality and sustainable dividends, not just recent payments. Here, for example, we could pick any of the four large banks. They all pay dividends in the March/April and September/October periods. This highlights another important point: There’s a difference between interim and final dividends. Final dividends are usually larger, sometimes as much as 2x or even 3x the interim dividend.

But here’s a cunning trick – FirstRand has a June year-end so their September dividend is larger, whereas the other three banks have a larger March dividend. For this reason, it’s attractive to put Standard Bank and FirstRand together as they respectively have December and June year ends.

Example

The example below is just that: An example. It’s also lumpy. You could smooth payments with different sized positions in each stock to try and achieve the same Rand value payout.

Theoretically, the portfolio example below could generate payments increasing ahead of inflation every year with one exception: The CoreShares Preference Share ETF. This tracks the prime lending rate so the price of the ETF will be fairly static.

But wait, there’s more

Rochelle, our May personality of the month, did a great review of her favourite ETFs where she mentions an offshore ETF paying monthly dividends. Read all about it here.


 

Month

Stock

Yield*

January
PREFTX (Preference share ETF) 6.3%
February
British American Tobacco** 6.2%
March
Nepi Rockcastle 6.1%
April
Standard Bank (F) 5.0%
Firstrand (I) 4.5%
PREFTX (Preference share ETF) 6.3%
May
British American Tobacco** 6.2%
June
Vodacom (F) 5.9%
Pick n Pay (F) 4.1%
July
PREFTX (Preference share ETF) 6.3%
August
British American Tobacco** 6.2%
September
Standard Bank (I) 5.0%
October
PREFTX (Preference share ETF) 6.3%
Firstrand (F) 4.5%
November
British American Tobacco** 6.2%
December
Pick n Pay (I) 4.1%
Vodacom (I) 5.9%

* This is the yield for the full year based on the previous twelve months of dividends, excluding special dividends. Price is from the close Friday 27 May 2022.

** Sterling dividend paid in Rands

(F) – Final (usually larger) & (I) Interim (usually smaller)

Simon Brown


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