How to Make 20% On Dividend Yields Every Year


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2020 has been a crazy year for investors – pulling in and pulling out of investments. Emotions have run very high at the NSE and other exchanges around the world.

During this time of Covid-19, I spent a lot of time reading, learning, thinking, playing and building future scenarios. After watching the stock market dip and the world come to halt, I had to seriously rethink a lot of the things I once held true.

During my downtime, I built an excel scenario mimicking a Warren Buffet’s investment strategy. The famous American investor, Warren Buffett makes 35% on annual dividend yields through his investment vehicle Berkshire Hathaway.

Learn More: How to Apply Warren Buffett’s Famous Investing Advice

Here, I will share my findings and you too can achieve similar results investing in Kenyan stocks, bonds and other cash assets using his investment model.

As always, the information presented here is for informational purposes only and hence, should not be treated as financial advice. Consult with your financial advisor before making any investment decisions. Always exercise due diligence and conduct your own research.

Creating 20% Annual Dividend Yields

There are three sets of conditions you need to meet to ensure that this invesment strategy works:

  • Maintain total control over your capital.
  • Acknowledge emotions but don’t let them control you.
  • Focus on cash yields. Cash yield is the flow of cash from investments.

Control On Capital

In order for this strategy to be successful, you need to have control over your capital. This means that you need to invest your own capital and limit the use of fund managers as much as possible. This is because fund managers return on investment is price based. Thus they tend to make investments looking at the increase in prices for returns rather than invest for cash flow.

Therefore, since our goal is to invest for cash flow, using a fund manager whose goal doesn’t align with ours will only derail our investment goals.

Avoid Emotional Investing

To achieve outstanding returns as high as 30% on the investment, we need to go long-term. Emotional investing is the enemy of long-term investing. Therefore, let’s not let emotional reactions to market swings mess with our investment strategy. If you believe you have made the right decision, then when the market bounces back your decisions will yield good returns.

Learn More: 3 Ways the Emotional Elephant is a Danger to Your Finances

Focus on Cash Yields

Making at least 20% on annual dividend yields requires us to take advantage of the power of compounding. That has always been Warren Buffets secret. He reinvests his dividend yields into other long-term cashflow yields that compound billions at 20% per year or higher.

For the rest of us non-billionaires without gigantic cash flow yields, we can mimic this investment strategy. The most powerful trick I know to be successful in life is to model success.

Before we take a taste of it, let’s take a vitual walk in it’s shoes.

Making 20% On Annual Dividend Yields

Scenerio assumptions:

  • Since our initial move is to invest for annual dividends, we choose stocks with dividend yields of at least 4% and at most 10% (learn why). Therefore, let’s take a conservative stance and pick stocks that provide a 4% dividend yield for our scenario here.
  • We are investing for the long-term and therefore need to factor in the growing earnings. Let’s assume that the growth in company earnings is 10% per year.
  • Let’s invest 10,000 (for simpler math) to create a stock portfolio of stocks that provide a 4% dividend yield with growing earnings at 10% per year. Therefore, the cash yield will also grow at a 10% rate per year.
  • We shall not factor in the growth in the portfolio value over time and also ignore costs associated with investing the funds.
ReturnFuture Value
at 12%, 10 yrs
Cash Yield
Per Year
Year 04%
Year 14.4%4401,287.3617.27%
Year 24.84%4841,256.8617.41%
Year 35.32%5321,226.1617.58%
Year 45.86%5861,198.7517.85%
Year 56.44%6441,169.2618.13%
Year 67.09%7091,142.5318.51%
Year 77.79%7791,114.1718.93%
Year 88.57%8571,087.9119.45%
Year 99.43%9431,062.4720.05%
Year 1010.37%1,0371,037.0020.74%
Total 7,41111,582.4618,993.46
Original Capital10,0007,41117,411
Cash on Cash Return74.11%156.29%109.08%

To increase our cash yields even further, we reinvest our cashflows into at the best rate of 12% per annum. We shall get 11,582.46 cash return. This yields a total return of 156.29% at the end of the 10 year period even higher than 20% return on investment.

Take Note

A few things to note. These things will significantly bring down our total return.

  • We have not factored in the cost of investing – commission fees, management fees, taxes etc. The aim is to reduce our basis using dividends and increase the cash on cash yield of our investment to recover our capital.
  • Companies may choose not to pay dividends in a given year – take note of their dividend policy before investing.
  • Other unforeseen factors may affect these results. 10 years is a long time – but that is why it is fun!

All in all, If we do not sell our shares and continue to reinvest, these returns after 10 years will have grown our cash yield on our remaining investment capital to a return of over 20% per year and continue growing for as long as we continue to invest and reinvest.

Gain Insight: Kenya’s Highest Dividend Paying Stocks of 2020


The goal of this investment strategy is to achieve yields of over 20% cash yield per year. Therefore, to achieve this, we buy great high yield companies on sale, earn dividends and reinvest the return on capital in other similar investments at the same high yield every year.

Eventually, our entire portfolio will have yields of 20% – 35% per year and every year that yield will continue to grow far in excess of inflation. Then and only then, can you consider to sit back and watch all your hard work and patience pay off.

Now go play!

Image credits: Top by Andrea Piacquadio from Pexels

Disclaimer: This information is provided to you as a resource for informational purposes only.

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Irene Makanga
Irene has an MBA in Finance and is an avid businesswoman, passionate about financial literacy.

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