My own TFSA portfolio consists of a rather large allocation to dividend Exchange Traded Funds (ETFs). The reason for this? Simple, I want to grow my portfolio, not only by gaining growth of the ETF’s over the longer term, but also to increase my portfolio value by taking advantage of the companies within these ETF’s when they pay dividends.
What is a dividend?
Think of it like this. When a company earns a lot of money, you could be entitled to a piece of that cake. Meaning, you can earn money from your investment through profits the company make. It’s money for free. It is your reward for investing in a company.
What is compound interest?
This is your ticket to successful investing. Over and above growth of your shares, interest plays a vital role to get your portfolio to superstar status, the Warren Buffett sort of status. When earning interest on your lump sum investment, you re-invest the interest. Now, when interest is paid again the next year, you effectively receive interest on interest. Some simple math:
You have R100
You receive 5% interest per year
At the end of the first year, you now have R105 (Due to the interest)
At the end of the second year, you will have R110.25
You gained 0.25c interest on your first R5 interest received. See where I am going with this?
By re-investing your dividends into the same share, compound interest even further accelerates growth of your investment. Understanding that time in the market will greatly grow your investment portfolio and generate wealth must not be forgotten. It is key to remember that investing is a long-term strategy for wealth creation.
Let’s look at the top 5 South African companies with fantastic track records when it comes to paying dividends, and then the dividend tracking Exchange Traded Funds available on Easy Equities.
Click on link for Research by Mark Ingham or Radio 702 and click on Logo to buy share.
SHOPRITE - 18 year consistent dividend growth
SANLAM - 18 years consistent dividend growth
NASPERS - 16 years consistent dividend growth
EOH - 15 years consistent dividend growth
AVI - 11 years consistent dividend growth
I've mentioned that I am personally a big fan of Exchange Traded Funds (ETFs) in several of my blogs. The reason why I adore ETFs is simply this. Diversification, low cost, ease of access and it takes decision making out of my hands.With one single transaction, you immediately have access to a wide range of shares. ETFs follows market themes or indices around the globe and I can have offshore exposure in ZAR. Here we have the divident tracking Exchange Traded Funds.
CoreShares DivTrax - Consists of companies that have increased or maintained stable dividends for the last 7 consecutive years.
CoreShares Global Dividend - Consists of Global companies with stable dividends
SATRIX DIVI Plus - Consists of 30 companies that are expected to pay the best normal dividends over the forthcoming year.
And there you have it folks. The dividend paying companies and Exchange Traded Funds out there for you to invest in.
To make every cent work for you, why not #Thrive with EasyEquities this year? check out the link and find out more on how you can enjoy ZERO BROKERAGE.
Until Next Time
Waylon Smit
The information contained on this Blog is of a general nature and intended as a guide only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision.
Sources: ShareNet - April 2018 /Investopedia - What are dividends /Investopedia - Compound interest