Dividend Paying Companies Eligible for EasyCredit Loans

Investing in dividend-paying shares could offer numerous financial benefits, such as passive income. Additionally, several of these shares can also serve as valuable collateral for a loan on EasyEquities.

Using shares as collateral for a loan involves offering your stocks to secure borrowing money. If you default, the lender can sell the shares to recover the loan. This allows access to funds without selling shares, preserving potential appreciation and dividends.

Dividend-paying stocks have the potential to provide a steady income stream to help ease loan repayments. Currently, shares that qualify to be used as collateral on EasyEquities are stocks from the JSE top 100 listed companies.

As of writing, companies that qualify for an EasyCredit loan and are preparing to pay dividends to shareholders include:

• Mr Price Group Limited: Paying a final cash dividend for its financial year, which is 17% higher than last year’s payout in the same period.
• Tiger Brands Limited: Paying an interim dividend that’s 9% higher than the previous comparative period’s payout.
• Netcare Limited: Paying the same dividend as last year’s interim payout.
• Hosken Consolidated Investment Limited: Paying a cash dividend to its investors this year after not paying last year.
• Stor-Age Property REIT Limited: Paying a lower dividend, slightly lower than last year’s final payout.

The next dividend payout from Mr Price Group, Stor-Age Property and Hosken Consolidated Investment Limited is likely to be in December (interim), while Tiger Brands & Netcare are expected to pay their next dividend (final) by January next year.

Using shares that pay dividends as collateral for a loan offers a unique advantage: the dividends provide a regular income stream that can help cover the loan's interest payments. This ongoing cash flow can ease the borrower's financial burden, making it easier to manage loan repayments without having to sell off assets or find alternative income sources.

In the context of a company that pays both ordinary and special dividends, the benefits can be even more pronounced. Ordinary dividends provide a predictable, steady income stream, while special dividends, which are paid out occasionally from surplus profits, can offer an additional financial boost. This combination can enhance the cash available to shareholders and flexibility in managing loan obligations.

Earlier this year, Exxaro Resources Limited paid an ordinary and special dividend; next month, Omnia Holdings Limited will be paying a dividend consisting of special and ordinary cash payouts, with the last trading date in August.

And yes, these are not the only companies that pay dividends and qualify to be used as collateral. In fact, the majority of the qualifying companies also have a history of paying dividends to shareholders.

Conclusion

The strategy of using companies that pay dividends could be helpful, especially considering that this is a cash distribution to investors by the company without investors having to sell their shares. This could also help pay off the loan.

With that said it’s also important for investors to consider the performance of the stocks they use as collateral. EasyEquities allows investors to take a loan at 33% of their portfolio's loan-to-value (LTV), representing the ratio of how much they are borrowing versus their qualifying investments. If an investor sells any of the qualifying investments or if the market drops and their value decreases, this will impact the ratio, using a portion of the proceeds to partially settle the loan. EasyEquities offers some leeway, allowing up to 48% LTV, but beyond that, action is taken to recoup the difference between the original loan amount (33%) and the newly qualified amount.

Interest rates are crucial in this scenario; movements in interest rates affect borrowing costs when using shares as loan collateral. Higher interest rates increase loan repayments, potentially straining finances if dividends can't cover the costs. Lower rates reduce borrowing costs, easing repayment. Fluctuating rates can also change share values, affecting the loan-to-value ratio and potentially prompting lender actions to adjust loan terms.

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