misuse of dividends

One stumbling to wealth accumulation by local retail investors is in the way they use their dividends.

While some companies and cooperative societies pay healthy dividends each year (or even each quarter), many investors use the cash to meet a variety of expenses – foodstuffs, school fees, credit cards, gifts, holidays – all except reinvestment in shares.

Dividend reinvestment is key instrument of accelerating investor returns. Without it, one’s investment only grows as a stock price appreciates or as one directly increases their investments.

The lag in time between dividend announcement and payments is probably a factor. Dividends arrive long after they have been forgotten about and provide an unexpected cash bonus in the middle of the year – and end up being used to meet urgent household bills e.g. most NSE firms pay 3 months after announcement ( and KCB is 4 months this year).

The financial cost of dividend payments by cheques is also expensive for both the companies (e.g. KQ will mail out almost 80,000 cheques a year) and investors (bank charges to clear cheques).

The new CDS system can help solve this problem in that dividend payments can be credited to one’s account – and then can be reinvested later in same stock or other company at the advice of a stockbroker. However, there have been some payment errors, and many investors may still prefer to see and verify their dividend cheques and then bank them and use the cash as they see fit.

13 thoughts on “misuse of dividends

  1. kritik

    to some, dividends represent the payoff or reward for their enterprisse.
    hence the immediate consumption. re-investing is indeed wise, but only if the dividend cheque is substantial.
    btw, it was nice to finally meet you.

  2. Anonymous

    There is a lot learning on wealth accumulation that the typical Kenyan investor needs and CDSC will in due time prove to be aneye openner
    The teething problems are just that.
    teething problems.


  3. mudskippah

    On a slightly different note, would you please write something about Unit Trusts and their suitability as a medium-to-long term investment? Would appreciate if you did.

  4. The.Hanyeé

    Agree with Ken…I also think the economically empowered Kenyan is undergoing a change, possibly a cultural one, on how they handle investments.

    With this shift needs to come education, starting from the ABCs of investing, especially in stocks and shares – and also in other options such as unit trusts. So that guys arent just buying, they are making informed and educated (sometimes guesses) decisions

    Whose responsibility is this? NSE? Or is there someone commissioned to enlighten and educate Kenyans on such matters, especially regarding shares?

    Hope the teething problems dont take too long though…

  5. sassy

    Reinvesting of dividends gives a greater reward in the end.But people still need crash courses in making investment decisions.Kengen IPO oversubscription with 12billion is an eye opener indicating that kenyans have cash and are ready and willing to invest if only they had enough info.

  6. Anonymous

    what is your opinion of the upcoming eveready ipo will it be a good buy especially in relation that merali is one of the biggest shareholders

  7. bankelele

    pesa tu: But only 48 stocks to choose from.

    mudskippah: will see how it goes

    Ken: CDS has taken investor several levels ahead and de-mystified the market for many others

    The.Hanyeé said: agreed

    sassy: 12b has to go somewhere, and brokers will try and persuade investors to park it elsewhere

    Anonymous: Merali is in almost every sector, but I’d have prefered some Celtel or KDN shares

  8. Shiroh

    For many, dividends is cashflow that at times can come at the right time.
    And the reasons we invest is to get that extra cash.

    For some of us, we could even be investing to enable us pay for a future contingent like lets say Education. So depends on the investor objectives

    I see no problem in utilizing the dividends especially if negligible like most of the times.

  9. tomas

    In my opinion Companies should credit the dividends to the CDS accounts
    It should b cheaper and faster
    Its tru what u say about the unwise investor, but for the majorityt out there it’s a learning period

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