It is often difficult to articulate to young investors, the value of holding high quality equity investments over an extended period of time.
For me, RMB Holdings is an excellent case study in building wealth through a combination of capital appreciation and dividends. The counter is a key component in my share portfolio.
As a reminder, RMB Holdings was listed in 1993 and combined banking interests (a 34% stake in FirstRand which comprises Wesbank, FNB, Ashburton and RMB) and insurance operations which were spun off in 2011 under the Rand Merchant Investment Holdings banner.
RMB Holdings (RMH), retains its 34% banking stake and also holds a R743m property portfolio. The property portfolio comprises stakes in Atterbury (27,5%), Propertuity (34,1%) and Genesis Properties (40%)
Let’s look at the last 5 years of RMB Holdings and see where a R10 000 investment would be today.
On 11 March 2013, RMB Holdings was trading at R40 per share. If you had invested R10 000, you would have secured roughly 250 shares (excluding some trading costs). For the purposes of this exercise, we will work with 250 shares.
Those 250 shares would today be worth R19962,50 on capital appreciation alone. But wait … there’s more … If you had simply held those shares, you would have accumulated R3238,75 in dividends.
In other words, pre-tax your R10 000 investment is worth R23 201 today.
Bearing in mind that this was achieved during a time when economic growth in South Africa was benign and banking groups were [and still are] facing the potential for a sovereign downgrade, most investors would have been very happy to double their money in 5 years.
Dividend growth is important:
RMH is effectively a holding company which generates returns from its underlying investments and as various investments reach scale, they are spun off in separate listings. The job of management is to make sure that the capital works hard and shareholders are ultimately rewarded.
This is where the dividend becomes really interesting.
In 2013, your 250 shares were paying you out R426,25 per year. 5 years later, those same 250 shares are paying you out R817,50 and the average dividend increase over the 5 years is around 18% – assuming that the global economy isn’t rocked by some kind of financial crisis (always a threat), your R10 000 investment will be paying you out nearly R1000 per year which you could be reinvesting each year.
Past performance is no indicator of future performance but if you are serious about building long-term wealth, the RMH example is a fantastic one.
The share highlights a good combination of capital and dividend growth and you would bet getting a growing property portfolio as part of the mix.
If you would like more information around building a dividend portfolio of either local or offshore investments, then please complete the form below or mail firstname.lastname@example.org