Dividend investment

[weijian]

I am always skeptical on those measured dividend yield by cost, rather on current price. It might distort your view, and make irrational decision amid better opportunities.

Just endure me extending the OT-ness.

Try asking folks who are sitting on 30-50% paper losses to use dividend yield by cost? In other words, has anyone consistently applied the same methodology (dividend yield by cost) on all the companies in their portfolio, especially that 'stinking dead fish' that is deep in the red? My back of envelope guess is that it is rare to find one.

IMHO, using dividend yield by cost serves no purpose at all. It is simply an additional injection of ego boasting confidence into the neural system for one to feel good when his/her accquired stock rises in price. In additional to having one's view distorted to make irrational decisions in the midst of better opportunities, the more deadly result is to risk making yourself think you are better than what you really are.

It is not rare to find the "methodology" around me, and even within VB.

Similar "methodology" as "zero cost, because dividends already paid back the invested cost" are also not rare around.

The more absurd would be selling half of one's stock which has gained 100%, and then claiming the remaining as free! This is essentially a future painkiller when the 'free stock' starts to drop in price (hey! it is free, what can i lose?)..I bet folks who are using such methodology will feel more pain if the stock drop 10% from their buying price, compared to dropping 20% from a price that has risen 50% from their buying price (well, i have to admit subtly I still do)

ok...time to stop hijacking with this OT (promise this to be the last post on biases here) The guys in the other room are talking about their Emperor Penguin.

[weii]

My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

I need to clarify here that my investment decision is mainly based on point 1 to 5. I practice dividend investing rather than value investing and a relevant article will be: http://www.insidermonkey.com/blog/buffet...ko-195665/

I agree that dividend yield by cost can be biased and is used only to reflect whether you have made a good investment decision in the past that results in a good yield at the current moment. If so, what factors lead to this good decision in the past that can be reinforced and improved over time.

I practice dividend investing and the key points of my style of investing are as follows:
1) Consistent dividend payout
Management should pay dividend every year whenever possible. A steady increasing dividend over time is preferred.
2) Strong management
A lot of focus needs to be on management skills and capability. A good business model and sound strategies are very important for improved performance and dividend over time. Do keep a look out for competitors’ business models and strategies too.
3) Align your investment with Mr. Market
Mr. Market currently favours gadgets (consumer, energy saving and automation), healthcare, life science, lab equipment (food safety etc.), measuring instruments (what can be measured must be measured in modern living), MICE industry and travel retail. This is likely due to the above average growth rate in these industries and the large potential market in the future.
I will put more of my investment in industries that Mr. Market prefers to ride the uptrend.
4) Diversification
As I do not practice Margin of Safety (MOS) investing style, diversification is a must to safeguard against poor judgement on my side. For dividend investing, it is not advisable to put more than 10% of your current net worth in any one stock at the time of purchase. Thus, I will have at least 10 stocks in my portfolio at any time.
I am not sure which investing guru promotes MOS investing style as I find that it tends to screen out too many good stock candidates. I follow Warren Buffett’s advice to pay a fair price for an excellent business and a good price for a reasonably good business.
5) Be flexible
If a company’s quarterly result is way below expectation, I will usually immediately sell or greatly reduced my investment in it if I feel that the poor result is due to increased competition or wrong strategies adopted. It is always better to be safe than sorry. I can always buy back the same company later if its result improves in the future.
Some of my current stocks are as follows:
a) First REIT
b) CEI
c) Chip Eng Seng
d) Kingsmen
My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

Hi Weii,

No problem, i am happy to share my thoughts etc. Btw just curious, you mentioned the focus in high growth industries, bio medical etc, are the stocks you are looking at listed on SGX? Is it possible to share what are you looking at; if you are not comfortable to share publicly, feel free to share by PMing me

In the current market sentiment, I sense among some VB members and the general retail market, the pessimism they have towards Penguin and the oil support industry at large. To quote Berkshire's 1990 shareholder letter: "The most common cause of low prices is pessimism - sometimes pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer."-- 1990 shareholder letter

Of course, if it is a good business then stick with it, if it is not, you shouldn't have bought in at the first place.

[yawnyawn]

My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

I need to clarify here that my investment decision is mainly based on point 1 to 5. I practice dividend investing rather than value investing and a relevant article will be: http://www.insidermonkey.com/blog/buffet...ko-195665/

I agree that dividend yield by cost can be biased and is used only to reflect whether you have made a good investment decision in the past that results in a good yield at the current moment. If so, what factors lead to this good decision in the past that can be reinforced and improved over time.

I practice dividend investing and the key points of my style of investing are as follows:
1) Consistent dividend payout
Management should pay dividend every year whenever possible. A steady increasing dividend over time is preferred.
2) Strong management
A lot of focus needs to be on management skills and capability. A good business model and sound strategies are very important for improved performance and dividend over time. Do keep a look out for competitors’ business models and strategies too.
3) Align your investment with Mr. Market
Mr. Market currently favours gadgets (consumer, energy saving and automation), healthcare, life science, lab equipment (food safety etc.), measuring instruments (what can be measured must be measured in modern living), MICE industry and travel retail. This is likely due to the above average growth rate in these industries and the large potential market in the future.
I will put more of my investment in industries that Mr. Market prefers to ride the uptrend.
4) Diversification
As I do not practice Margin of Safety (MOS) investing style, diversification is a must to safeguard against poor judgement on my side. For dividend investing, it is not advisable to put more than 10% of your current net worth in any one stock at the time of purchase. Thus, I will have at least 10 stocks in my portfolio at any time.
I am not sure which investing guru promotes MOS investing style as I find that it tends to screen out too many good stock candidates. I follow Warren Buffett’s advice to pay a fair price for an excellent business and a good price for a reasonably good business.
5) Be flexible
If a company’s quarterly result is way below expectation, I will usually immediately sell or greatly reduced my investment in it if I feel that the poor result is due to increased competition or wrong strategies adopted. It is always better to be safe than sorry. I can always buy back the same company later if its result improves in the future.
Some of my current stocks are as follows:
a) First REIT
b) CEI
c) Chip Eng Seng
d) Kingsmen
My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

Hi Weii,

No problem, i am happy to share my thoughts etc. Btw just curious, you mentioned the focus in high growth industries, bio medical etc, are the stocks you are looking at listed on SGX? Is it possible to share what are you looking at; if you are not comfortable to share publicly, feel free to share by PMing me

In the current market sentiment, I sense among some VB members and the general retail market, the pessimism they have towards Penguin and the oil support industry at large. To quote Berkshire's 1990 shareholder letter: "The most common cause of low prices is pessimism - sometimes pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer."-- 1990 shareholder letter

Of course, if it is a good business then stick with it, if it is not, you shouldn't have bought in at the first place.

It is incorrect to compare valuation of companies using dividend yield on cost. Would it really be cheaper if you bought stock A at 10% yield on cost and is now yielding 5% while Stock B is currently at 7% yield. You are losing out on the opportunity cost!

[CityFarmer]

My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

I need to clarify here that my investment decision is mainly based on point 1 to 5. I practice dividend investing rather than value investing and a relevant article will be: http://www.insidermonkey.com/blog/buffet...ko-195665/

I agree that dividend yield by cost can be biased and is used only to reflect whether you have made a good investment decision in the past that results in a good yield at the current moment. If so, what factors lead to this good decision in the past that can be reinforced and improved over time.

Dividend yield base on cost, is misleading, for both dividend investing and value investing. The blog seems like a news report, with an attractive, but misleading header?

[NTL]

My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

I need to clarify here that my investment decision is mainly based on point 1 to 5. I practice dividend investing rather than value investing and a relevant article will be: http://www.insidermonkey.com/blog/buffet...ko-195665/

I agree that dividend yield by cost can be biased and is used only to reflect whether you have made a good investment decision in the past that results in a good yield at the current moment. If so, what factors lead to this good decision in the past that can be reinforced and improved over time.

Dividend yield base on cost, is misleading, for both dividend investing and value investing. The blog seems like a news report, with an attractive, but misleading header?

I am also a dividend investor, and I don't believe in measuring dividend return based on cost. As with CF, I believe that measuring dividend based on current price will be more appropriate. It allows me to assess my current dividend return against what else is available in the market. If there is something better than what I having now, at current price, I won't mind doing a "swap" and increase my overall portfolio yield.

There had been some discussions previously regarding dividend investing. Maybe the moderators can do some cleaning up here by moving all these "inappropriate" posts to that thread.

[weii]

Dividend yield by cost is used only to reflect whether you have made a good investment decision in the past that results in a good yield at the current moment. If so, what factors lead to this good decision in the past that can be reinforced and improved over time.

For example, 5 years ago in year 2010 you identified 3 companies with relatively high dividend, Company A with 7% yield, Company B with 7.5% yield and Company C with 8% yield at that time. You are looking to invest in a company in year 2010 that can give you an annual dividend yield of 9% by year 2013 and 9.5% by year 2015.

After a detailed review of business models, strategies and management capabilities, you decided to invest in Company A in year 2010 despite the fact that it had the lowest current yield of 7%. You noted down in your journal the reasons for doing so and hope to review them in year 2013 and 2015.

In year 2013, Company A had performed well and increased its dividend so that it gave you an annual dividend yield (based on cost) of 9.5%. Company B did reasonably well but due to strong competition could only give the same annual dividend yield of 7.5% while Company C made some wrong business decisions and annual dividend yield (based on cost if invested) shrunk to 5%.

In year 2015, Company A continued to perform well and further increased its dividend so that it gave you an annual dividend yield (based on cost) of 10%. Company B annual dividend yield remained at 7.5% and Company C at 5% (based on cost if invested).

You will thus be able to reflect whether the reasons for your investment decision made in year 2010 was correct using this method.

In year 2015, you identifed a new Company D with a current dividend yield of 8%. Meanwhile, stock price of Company A has risen and the current yield for Company A is now 7.5%.

The article I posted earlier mentioned that you need to consider a company’s dividend growth and the likelihood it will continue that growth going forward besides the current dividend yield in your investment decision. Other concept includes 'dividend vault' companies that interested readers may read at: http://www.insidermonkey.com/blog/buffet...ko-195665/

In other words, you need to do a detailed review of business models, strategies and management capabilities of company D before deciding to switch your investment from Company A.

My current annual dividend yield for all the above stocks are above 10% except for CEI (9.7% yield). The high dividend yield is because I purchased these stocks when they were cheaper. The first 3 stocks have increased dividend for this year due to better results while Kingsmen has maintained its dividend.

I need to clarify here that my investment decision is mainly based on point 1 to 5. I practice dividend investing rather than value investing and a relevant article will be: http://www.insidermonkey.com/blog/buffet...ko-195665/

I agree that dividend yield by cost can be biased and is used only to reflect whether you have made a good investment decision in the past that results in a good yield at the current moment. If so, what factors lead to this good decision in the past that can be reinforced and improved over time.

Dividend yield base on cost, is misleading, for both dividend investing and value investing. The blog seems like a news report, with an attractive, but misleading header?

[corydorus]

Dividend yield always about yield per current dollar. Meaning the price has to be current. A better measure will be capital gain instead for situation where there is price gains.

[Raks]

Started investing my owned savings in the first few months of GFC, and cut losses possibly at the worst time. Despite reading many books by gurus and dont really need the money. When WB called to buy America I waited for the robin, and only invest again when I saw flocks of robins.

I am one of those who cheat myself that my investment is "free" after selling off half of the one fold increase. Worse, I also do some trading/punts on the same counter when the prices looks insane, make profit and deduct the "cost" of my remaining.

All this probably do not do justice to the education that I have received in school. But practical wise, this is essential to my "holding power".
Holding power depends on the money that I have, and my fear of lose. Fundamental investment wise, it's wrong. Personal wise, it is extremely helpful to me. It allows me to buy and "forget" about them - knowing that I paid "much less" than the current price. I am a amateur investor therefore I use amateur ways to help in my psychology part.

As a part time investor with a mentally exhausting day job, I specialize myself in a few counters and only invest and trade thos counters. So better opportunities don't really come that frequently.

On dividend, I do deduct my investment cost with div I've received. But this figure is to boost confidence (not to boost performance) when my excel ask me to hold but I really want to cut lose.

Performance of counter wise I would gauge on the div vs current price. I want my stocks to pay dividend, but how many % dividend is not really that important vs other figures as I want to hold for long time. I dont know who are the best performers. I only want to know my holdings are doing acceptably well.

[Musicwhiz]

Just browsed through this thread quickly and read the last 2 pages.

It seems the phrase "dividend yield" is mentioned a lot, but there was no mention of "dividend sustainability". How does one practice proper, prudent investing without looking deep into the business to assess if the yield is sustainable?

[CityFarmer]

Just browsed through this thread quickly and read the last 2 pages.

It seems the phrase "dividend yield" is mentioned a lot, but there was no mention of "dividend sustainability". How does one practice proper, prudent investing without looking deep into the business to assess if the yield is sustainable?

I reckon it is implicit. The same as growth stock, which implicitly means "sustainable growth stock"