Warren Buffett has often said that he gives clear preference to companies who tend to pay high dividends and manage to consistently grow these dividend payments over time,

Buffet, or any other value investor for that matter, base investment decisions on the prospects of total return, and dividend yield forms part of that equation. It also includes prospective growth of the actual business plus the trading multiple of the underlying share. This tripod approach clearly works. Buffett’s Berkshire Hathaway outperformed the S&P 500 by 10.8% per year from 1965 through 2018, generating an overall gain of 2,472,627% compared to the market’s total return of 15,019%.

Ironically Berkshire Hathaway itself has zero dividend policy and prefers to reinvest all of its earnings for growth, but the dividend stocks in his portfolio are best of a breed and his retained focus on high-quality businesses trading at reasonable prices will continue to pay off.

Lourens Coetzee, investment specialist at Marriott, a boutique asset management firm concurred this notion in Personal Finance, a supplement to Business Report. He says it is better to emphasise the quality of the underlying share. You need to make sure that the companies you are considering have good prospects such high demand for its products, a solid balance sheet and positive cash flows.

The problem is that these companies are often household names and the darlings of stock exchanges all around the world, and tend to trade at high multiples, and relatively low dividend yields, like Coca Cola and Johnson & Johnson abroad and Naspers and Goldfields back home. But Coetzee still prefers quality over quantity and says: “They might reflect a lower yield, but offers greater certainty.”

That is all good and well for the established investor, but where do newbies cross the dividend divide?

Dwaine van Vuuren, a full-time trader, global investor and stock-market researcher at Sharenet Analytics, says a good place to start looking is somewhere between payment consistency and highest yield.

“Of course, this does not mean you must ignore everything else, its a reasonable point of departure,” he says.

“The team analysed dividend data going back 50 years, and focusing on consistent well-paying dividend profiles emerged as a good bet, and their punts for the darlings of dividends this year.”

This was the methodology to their madness: Only the 400 JSE listings, were considered, the listed property was excluded, and furthermore, only the 45 companies that managed to increase their dividends consecutively over the last two years made the cut.

They were then ranked by current yield (1 = highest yield, 45 = lowest) and payment terms (1= 18 years, 45 = 2 years) and subsequently combined and totalled. Based on the combined score the top 20 highest paying longest ranging, uninterrupted dividend payers of the JSE were identified.

“It’s interesting to note that every one of these shares bar Richemont, showed a dividend yield greater than that of the All-Share Index of 3.35%,” says van Vuuren.

This is Sharenet’s proposed dividend darlings, it is up to you to decide if they dance the dance, and to your specific tune.

At least we the layman have a better idea of where to dig and what to dig for when it comes to dividends, whether it will be worth unearthing is not as certain as death and taxes.

A blow for dividend-investors came in February last year when the finance minister at the time, Pravin Gordhan, announced an increase in dividend withholding tax from 15% to 20%. This may have direct investments, even dividend funds and index trackers lose a little of their lustre.

Says Kyle Hulett, Sygnia Head of Asset Allocation: “While top-paying dividend-focused investments are indeed valuable in some instances, it is wise to consider your overall investment goals.

“Asset allocation can be affected by the constantly changing tax regime, making it vital to have the appropriate mix of income and growth assets safely invested in a smart and appropriate product wrapper, ensuring the best tax and (also) expense returns.”

Conversely, tax-friendly dividend-paying vehicles such as pension and provident funds, retirement annuities, preservation funds, compulsory-purchase living annuities, and tax-free savings accounts, are viable alternatives.

So the dividend love story is far from over. BM