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The importance of dividends…

14 July 2004 Angelo Coppola

Theo van der Lingen of PSG Fund Managers talks about two share statistics, namely the price/earnings ratio and the yield on shares.

Or put differently, how much investors are willing to pay for earnings and secondly, what kind of actual return you are getting on the investment?

Where the US market shows that many companies are at above 20 times earnings and yielding less than 2%, many local companies show below 13 times earnings and yielding above 3%.

At these dividend levels, some shares still offer excellent value if you consider the expected return on your money.

A dividend can be viewed as a return of one's money. If you buy a share with a 5% dividend, in five years time you would receive around a quarter of the cost of your share back.

Dividends also reduce risk. A share that pays a dividend is returning a portion of the investment every time a dividend is paid, thus reducing your risk.

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