August 18, 2004

By Renée Bonorchis

Johannesburg - Equities with decent dividend yields are the place to be, and investors may be cottoning on fast with the FTSE/JSE Africa all share index up 10 percent since May.

Craig Pheiffer, the chief investment strategist at Sasfin Frankel Pollak Securities, said there had been a good case for buying dividend-yielding equities even before last week's rate cut, but now there was even more of a reason with money market rates dropping and the bond run last week short-lived.

BoE Private Clients is another investment house that believes in buying into a good dividend yield, and Sanlam Personal Portfolios investment managers' survey, the SP Bull and Bear Report, released late last week, concurred, saying local equities were the asset class of choice, with returns in excess of 10 percent predicted over the next 12 months.

Pheiffer said the strategy behind looking at dividend yields as an investment strategy stemmed from the fact that returns on cash were now very poor.

People are paying less interest to borrow cash since the rate cut.

An investor who wanted an income from their investments along with a good tax argument should look at high interest bearing investments.

This would point to stocks and bonds.

Although the surprise rate cut caused a brief run on bonds, it did not make bonds an investment strategy for the long term.

"I wouldn't rush into bonds. Many missed last week's run but they are back where they were and the kneejerk reaction is over. And the next move in rates could be higher," Pheiffer said.

And from a tax point of view, stocks won hands down. This was because bonds, cash and property were all subject to tax, and dividend payments were not.

Pheiffer said Barloworld, Edcon, the banks and platinum stocks would all be good dividend plays with yields of 4 to 5 percent.

He added that property stocks were also worth a punt when it came to yields of 11 percent and more. Some that would make the grade were Acucap, ApexHi A and B, Growthpoint, iFour, Paraprop, Prima, SA Retail and Spearhead.

BoE Private Clients said there were some hot stocks in the small- to medium-cap space. Grindrod, Argent and Astral Foods were named, and financial services picks included Capital Alliance, Metropolitan and African Bank.

The Sanlam survey said that on the local equity front, industrials were the asset managers' preferred sector with financials in second place.