Analysis & Profiles 8.1.2016 01:28 pm

Dividends: both saviour and villain in 2015

Picture: Gallo Images

Picture: Gallo Images

The story of the JSE in 2015.

Last year will not be remembered as one of the JSE’s finest. After gaining more than 50% in the previous three years, the local market was only marginally positive in 2015.

There are three major index providers that cover the JSE, and their broad indices all tell a similar story. There was really not much to get excited about:

JSE major index performance in 2015
Index Price return in ZAR

(excluding dividends)

Total return in ZAR

(dividends reinvested)

FTSE/JSE All Share Index 1.90% 5.10%
S&P South Africa Composite 1.50% 4.64%
FTSE/JSE SWIX All Share Index 0.50% 3.60%
MSCI South Africa -0.15% 0.28%

Source: JSE, SPDJI, MSCI

The primary reason that the MSCI index is notably different to the others is that it does not include any counters that have a primary listing elsewhere. The likes of SABMiller, British American Tobacco and Richemont are therefore not included.

This gives a good idea of how significant the performance of these big rand hedge counters has been to the market overall. Once they are stipped out, a weak year looks even weaker.

It is also important to appreciate just how important dividends were in 2015. The FTSE/JSE All Share showed a dividend yield for the year of 3.17% and the S&P South Africa Composite a dividend yield of 3.28%. In both cases, these outstripped the capital gains on offer.

Large caps

Looking specifically at local large cap indices, one can see how the market continued to be led by the big players. Large caps, primarily the big industrial counters, were the primary source of market returns. 

This is unusual, as over the long term, small caps will generally out-perform the broader market as they have the potential for more rapid growth. However, 2015 was once again a year in which this was turned on its head.

JSE major index performance in 2015
Index Price return in ZAR

(excluding dividends)

Total return in ZAR

(dividends reinvested)

FTSE/JSE Top 40 Index 4.20% 7.50%
FTSE/JSE SWIX 40 Index 3.00% 6.20%
S&P South Africa 50 2.63% 5.86%

Source: JSE, SPDJI

Returns in this sector were still muted, but slightly better than the market as a whole. Here again, though, dividend yield played a significant role in the return investors were able to earn.

Alternatively-weighted indices

To get a picture of how different kinds of stocks performed, it is a very interesting exercise to look at the performance of indices that are not weighted by market capitalisation. This provides a more complete picture of the market as it reveals underlying trends.

JSE major index performance in 2015
Index Price return in ZAR

(excluding dividends)

Total return in ZAR

(dividends reinvested)

S&P GIVI South Africa Composite Index 5.63% 8.95%
S&P South Africa Momentum Index 3.96% 7.13%
S&P South Africa Low Volatility Index 2.23% 6.08%
S&P South Africa Dividend Aristocrats Index -3.77% -0.17%
S&P South Africa Quality Index -9.80% -6.13%
FTSE/JSE Rafi 40 Index -11.00% -7.50%
FTSE/JSE Dividend Plus Index -23.40% -19.70%
S&P South Africa Enhanced Value Index -26.38% -23.44%

Source: JSE, SPDJI

The S&P GIVI methodology combines low volatility with intrinsic value, determined by book value and discounted projected earnings. Its constituents are primarily consumer and financial stocks, which were the markets leading performers.

Momentum continued to be a theme in 2015 as shown by the positive performance of the S&P South Africa Momentum Index. Even here, though, dividends made up almost half of the total return.

The performance of the S&P South Africa Low Volatility Index is also notable, given some of the large swings the market experienced last year. It could not avoid the bumps entirely, but it does show how in this kind of environment stocks demonstrating lower volatility will generally out-perform.

The three indices at the bottom of the list are all designed to capture value stocks, and their performance is a clear illustration of how out of favour value continued to be during 2015. The S&P South Africa Enhanced Value Index selects stocks based on their price-to-book, price-to-earnings and price-to-sales metrics, and the significant drop in this index shows how the cheap stocks in the market have just continued to get cheaper.

An interesting observation is that while a major theme in the local market was how important dividends were to total returns last year, simply chasing dividend yield was a losing strategy. The FTSE/JSE Dividend Plus Index looks only at dividend yield, and high yielding stocks continued to suffer price pressure. Amongst the index’s largest constituents are MTN and Coronation, which are currently trading on dividend yields of 10.09% and 11.04% respectively.

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