The South African dividend stock
Rather than go for the obvious sectors, we have been looking into dividend stocks that are a little off the beaten track.
One such company is Nampak in South Africa.
This is a packaging company that has been going through a turnaround in the past five years. By selling off commoditised packaging businesses generating low returns, the company has improved its balance sheet, going from debt of 2.6 times earnings before interest, tax, depreciation and amortisation to 0.8 times. Though packaging is a tough business, Nampak is now focused on providing higher end packaging solutions to companies like Coca Cola, Unilever and SAB Miller across Africa.
Dividends are great for income, but remember that they also deplete the capital base of a company and therefore need to be paid out carefully by management teams that understand the long-term needs of the business and its costs of capital.
Edward Lam is manager of the Somerset Emerging Markets Dividend Growth fund