Dividend investment

Flinger - there is no sense calculating yield based on historical purchase price because that is not your true alternative value now.

(05-08-2013, 12:14 PM)flinger Wrote:

(02-08-2013, 04:22 PM)NTL Wrote: personally own 20 over counters of over different type of industry and capitalization, giving around 5% dividend based on current price on the portfolio.

May I ask why do you calculate the dividend yield based on current price instead of the purchased price?

Appreciate your insight.

Thank You.

Hi Flinger,

As mentioned by godjira1, I use current value as to look for
alternatives. If I can find something of equal perceived risk that can give a better yield than what I holding now, I may just do the switch. The historical price is of no meaning to me.

Pardon me for my ignorance and my ignorant questions as I seek enlightenment.

Wouldn't you calculate the true yield based on what you actually paid for the stock instead of what the market is pricing the stock at?

The current price is not what you paid for right? so if you calculate the yield using current price ; aren't you getting the wrong yield for calculating for your portfolio returns?

For example if I bought Star hub shares at 1.96 and I calculate my yield

Dividend Yield = annual dividend per share / stock's price per share

0.20 / 1.96 = 0.10 * 100 OR 19600 / 2000 = 10 % So do I take it that my dividend yield to be 10% OR
do I take my dividend yield to be 0.20 / 4.36 = 0.04 * 100 = 4%?

Am confused why I would sell my Starhub shares for something that has higher than 4% yield based on current price when I got Starhub shares at a good price?

Appreciate if you could help me understand. thank you in advance.

(05-08-2013, 12:41 PM)NTL Wrote:

(05-08-2013, 12:14 PM)flinger Wrote:

(02-08-2013, 04:22 PM)NTL Wrote: personally own 20 over counters of over different type of industry and capitalization, giving around 5% dividend based on current price on the portfolio.

May I ask why do you calculate the dividend yield based on current price instead of the purchased price?

Appreciate your insight.

Thank You.

Hi Flinger,

As mentioned by godjira1, I use current value as to look for
alternatives. If I can find something of equal perceived risk that can give a better yield than what I holding now, I may just do the switch. The historical price is of no meaning to me.

no right or wrong to use yield on cost or yield on market, just your preference ba

generally I also use yield on market

example starhub bought at $2, paying 20 cents
yield on cost is 10%

however the yield on market is now 5%, which I should use to compare to other alternative investments that I can switch into

Example $10,000 worth of starhub may only yield $500 but if you sell it away to buy a higher yielding stock, you can get more than $500 annual dividends with the same $10,000 capital.

btw those interested in low risk high yield small cap stock may wanna take a look at karin

http://stockbrokerplayspoker.blogspot.sg...y-low.html

I wrote about it few months back, price still at 31-33 cents range, still cheap at 7 times earnings 7% yield and discount to book, net cash position

another stock that I bought is valuetronics now at 19-20 cents, pe 6 yield 6%, book value 28 cents, net cash with 10 cents cash per share

as with the above example with starhub, if you sell your starhub away and purchase karin or valuetronics, you get a higher dividend yield

starhub seems quite overvalued now with over 20 times earnings, so do be careful ^^

Hi flinger,

I suppose everyone have their prefer way.

For me, say that I bought Starhub same as you at $1.96, now is $4.35. M1 now is $3.17. Say M1 is giving dividend of 16c, which is around 5%, then I will maybe get a little more by selling away my Starhub, and use the money to buy M1, isn't it?

Of coz, I am not considering any future price or dividend movement in the above example.

(05-08-2013, 02:46 PM)flinger Wrote: Pardon me for my ignorance and my ignorant questions as I seek enlightenment.

Wouldn't you calculate the true yield based on what you actually paid for the stock instead of what the market is pricing the stock at?

The current price is not what you paid for right? so if you calculate the yield using current price ; aren't you getting the wrong yield for calculating for your portfolio returns?

For example if I bought Star hub shares at 1.96 and I calculate my yield

Dividend Yield = annual dividend per share / stock's price per share

0.20 / 1.96 = 0.10 * 100 OR 19600 / 2000 = 10 % So do I take it that my dividend yield to be 10% OR
do I take my dividend yield to be 0.20 / 4.36 = 0.04 * 100 = 4%?

Am confused why I would sell my Starhub shares for something that has higher than 4% yield based on current price when I got Starhub shares at a good price?

Appreciate if you could help me understand. thank you in advance.

(05-08-2013, 12:41 PM)NTL Wrote:

(05-08-2013, 12:14 PM)flinger Wrote:

(02-08-2013, 04:22 PM)NTL Wrote: personally own 20 over counters of over different type of industry and capitalization, giving around 5% dividend based on current price on the portfolio.

May I ask why do you calculate the dividend yield based on current price instead of the purchased price?

Appreciate your insight.

Thank You.

Hi Flinger,

As mentioned by godjira1, I use current value as to look for
alternatives. If I can find something of equal perceived risk that can give a better yield than what I holding now, I may just do the switch. The historical price is of no meaning to me.

I think by calculating the yield with the current price, we're able to compare against other stocks and benchmark whether it is worth investing in that stock.

For your starhub example, your calculated return of 10% based on average purchased price is not the true value of what the market perceived. Those who are thinking of investing in starhub now will be perceiving the yield as 4%. Thus, if they compare against other stocks, starhub may not be that attractive anymore.

As for whether you should sell your starhub shares to buy into other stocks, most investors even if they sell, they will sell partially. This is what we call divestment. If profits are enough, the remaining shares in starhub can be a risk free investment. You'd have gotten back all your capital with profits but still have shares in starhub and still collecting dividends for as long as you want.

____________________________________________________________
A journey into the world of finance and investments - sgyounginvestment.blogspot.sg

(05-08-2013, 02:46 PM)flinger Wrote: Pardon me for my ignorance and my ignorant questions as I seek enlightenment.

Wouldn't you calculate the true yield based on what you actually paid for the stock instead of what the market is pricing the stock at?

The current price is not what you paid for right? so if you calculate the yield using current price ; aren't you getting the wrong yield for calculating for your portfolio returns?

For example if I bought Star hub shares at 1.96 and I calculate my yield

Dividend Yield = annual dividend per share / stock's price per share

0.20 / 1.96 = 0.10 * 100 OR 19600 / 2000 = 10 % So do I take it that my dividend yield to be 10% OR
do I take my dividend yield to be 0.20 / 4.36 = 0.04 * 100 = 4%?

Am confused why I would sell my Starhub shares for something that has higher than 4% yield based on current price when I got Starhub shares at a good price?

Appreciate if you could help me understand. thank you in advance.

(05-08-2013, 12:41 PM)NTL Wrote:

(05-08-2013, 12:14 PM)flinger Wrote:

(02-08-2013, 04:22 PM)NTL Wrote: personally own 20 over counters of over different type of industry and capitalization, giving around 5% dividend based on current price on the portfolio.

May I ask why do you calculate the dividend yield based on current price instead of the purchased price?

Appreciate your insight.

Thank You.

Hi Flinger,

As mentioned by godjira1, I use current value as to look for
alternatives. If I can find something of equal perceived risk that can give a better yield than what I holding now, I may just do the switch. The historical price is of no meaning to me.

Thank you everyone for your reply. It was nice to hear different views.

I guess yield is not the only data you have to look at when you are buying a dividend stock. There are many factors to consider and the most important one is your own goals for the return and the portfolio goals.

I feel margin of safety is often important to consider along with the market cycle, company historical track record during bad times etc...etc...

Thank you all your views and comments. Helps me understand better.

Quote:Wouldn't you calculate the true yield based on what you actually paid for the stock instead of what the market is pricing the stock at?

The yield based on historical cost will start to get ridiculous when you hold long enough.
Microsoft share price in 1986.. around 10cts.
Microsoft dividend last year 92cts.
Yield for Microsoft faithfuls = 920 percent?

IMO,

Dividend Yield based on Cost is more suitable for those who prefers to be less active investors ie. Continue to hold as long as it's above their yield target.

Dividend Yield based on Market Price is more useful for those who prefers to be more active investors ie. they'd be motivated to switch to more attractive yield alternatives. Here, they'd be comparing between alternatives which are similar eg. Low Growth vs Low Growth ; 100% Payout vs 100% Payout, otherwise, need to have a way to normalise for fair comparison.

I think dividend yield on cost isn't effective. Even if we are targeting 7% yield and the dividends remained unchanged by the share price doubled and we still hold, our effective yield is only 3.5%. The person could divest his stake and switch to another investment yielding a 'lower' 4% yield and still generate higher cash-flow stream.