Dividend investment

[CityFarmer]

Using various means to increase the "holding power" are good. I reckon each individual has his/her own unique means to increase the "holding power". I am using the means of no debt, intensive homework, and take care of downsides, to increase my confidence, and thus the "holding power"

The key is the means shouldn't impair the rationality in your investing decisions, either buy, sell, or hold. On the right time to sell, after fundamentals changing to the worst, but hold because of "free money anyway", isn't a good thing to me...

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.

[CityFarmer]

One doubt, is why not using less misleading metrics for the dividend growth e.g. DPS (adjusted for bonus etc)? It will serve the purpose well, and less likely to impair the "quality" of your investment decision? right?

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.

[ghchua]

Dividend investing and dividend growth had been well documented but it had not been captured in some cases whereby companies gave out a lump sum special dividend due to asset sale etc or capital reduction due to the fact that there is not enough accumulated profits to pay dividends and therefore needed a capital reduction to return cash back to shareholders.

Most screening tools available will not be able to capture capital reduction and sometimes special dividend or one-time payout also not in the database.

Which means, we should not be too focus on only dividends yield per say but rather understanding how companies are able to pay dividends consistently and why they could not. Understanding the company business model is also required to determine dividends are indeed sustainable and recurring.

Companies like shipping trusts, Babcock and Brown, MIIF etc are high yielding stocks previously but look at where they are now. Non-dividend paying stocks like Global Testing can sometimes give you a surprise capital reduction which returns all your "missing" dividends throughout the years.

[gutman]

As one who invest for income, I too agree that dividend yield should be based on current share price and not cost.

We come across this financial jargon "yield compression" every now and then. A "sophisticated" term used in the financial industry which simply means given that dividend remains constant, your yield goes down or got compressed when the share price goes up. This "compressed" yield is measured by the current share price.

Just to illustrate with a little exaggeration.

Assuming we are investing for income and have wanted a yield of 5% and have bought into a particular stock that gives us just that. Because the share price shoots up so much that the yield (based on current share price) is now below 1%, we can consider selling out of this stock and look for another one that gives you 5% based on your current selling price or just park the whole lot into a bank deposit that pays you more than 1.4% (yes, you can get a time deposit of 1.4% currently).

If we have based the yield on cost, we may continue to believe we are getting 5% yield, when in fact it is only giving us less than 1% and we would have missed out the many opportunities out there.

[Ray168]

Just sharing ...

As one who invest for income, I too agree that dividend yield should be based on current share price and not cost.

We come across this financial jargon "yield compression" every now and then. A "sophisticated" term used in the financial industry which simply means given that dividend remains constant, your yield goes down or got compressed when the share price goes up. This "compressed" yield is measured by the current share price.

Just to illustrate with a little exaggeration.

Assuming we are investing for income and have wanted a yield of 5% and have bought into a particular stock that gives us just that. Because the share price shoots up so much that the yield (based on current share price) is now below 1%, we can consider selling out of this stock and look for another one that gives you 5% based on your current selling price or just park the whole lot into a bank deposit that pays you more than 1.4% (yes, you can get a time deposit of 1.4% currently).

If we have based the yield on cost, we may continue to believe we are getting 5% yield, when in fact it is only giving us less than 1% and we would have missed out the many opportunities out there.

[paullow]

The above are all valid points.
In addition, it is also important to study absolute dividend paid out per yr. Any share no increase or decrease might affect this. So looking at thr actual sum paid gives a more accurate picture.
Personally i am a believer of repeatibility n trends. Bonus n/or special dividends suggests management generosity n its impossible to.predict when future specials will come, i just treat specials/bonus as special/bonus. More impt issue is to discern past dividend trend n decide whether this can be repeated.
A further point if i could add is to plan(where possible n feasible) dividend cashflow at various times of the year.
1) reinvesting can take place at various times
2) in times of crisis, this multiple cash flowing in can serve to buying more shares n also serves to alleviate n treat one's psychological fear during those fearful times, that hey, no need to bail.out as i am actually receiving money regularly even during crisis. To me the latter point is impt, as bailing out often means realising of losses into real losses n who can time when is the real trough when real crisis hits?
My 2 cents

[CityFarmer]

The above are all valid points.
In addition, it is also important to study absolute dividend paid out per yr. Any share no increase or decrease might affect this. So looking at thr actual sum paid gives a more accurate picture.
Personally i am a believer of repeatibility n trends. Bonus n/or special dividends suggests management generosity n its impossible to.predict when future specials will come, i just treat specials/bonus as special/bonus. More impt issue is to discern past dividend trend n decide whether this can be repeated.
A further point if i could add is to plan(where possible n feasible) dividend cashflow at various times of the year.
1) reinvesting can take place at various times
2) in times of crisis, this multiple cash flowing in can serve to buying more shares n also serves to alleviate n treat one's psychological fear during those fearful times, that hey, no need to bail.out as i am actually receiving money regularly even during crisis. To me the latter point is impt, as bailing out often means realising of losses into real losses n who can time when is the real trough when real crisis hits?
My 2 cents

We have another mean to increase the "holding power" here.

[weii]

I have sent a private message for the query below.

Dividend payout ratio is also an indicator I like to use.

One doubt, is why not using less misleading metrics for the dividend growth e.g. DPS (adjusted for bonus etc)? It will serve the purpose well, and less likely to impair the "quality" of your investment decision? right?

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.

[Raks]

Musicwhiz mentioned about dividend sustainability.

It's best not to equate value investing to holding it for the long run.

I wanted sustainable dividend (itself an indication of good company) and have never hold on to any stock because of one "free money anyway" factor alone. I'm skeptical to everything including my analysis (based on their figures?). I need to risk-manage what if I'm wrong.

I thought cap size should not matter value vs price but I was wrong for my purpose. Many of this small/mid cap companies in sgx are conservative in debt and pays dividend but they tend to get privatized. They don't grow much in price but get privatized when value is greater than price.
It's frustrating to keep having stocks getting privatize, especially in this 2,3 years. I want yearly pay out and capital growth for 20 years, not a one time double digit % profit after 2, 3 years of holding. Buy under value stocks and sell when it goes high or get privatized are indeed, value investing. I do love digging gems when I have the time too, but I want to buys something that can last longer.

A good company paying 1% dividend yield is ok to me if I know the rest of the earnings are in good hands. Return = Div + Capital gain. Do we switch every time we see someone else offers higher dividend? Of course there are more than one indicator to look at.

Remember QingMei that paid insane dividend? I pulled out fast enough after seeing buddies here tearing their nice figures apart. I was a pre-rookie then.

There's a method call the "dogs of Dow" for those who have yet heard of it.
http://en.wikipedia.org/wiki/Dogs_of_the_Dow
High dividend yield could indicate a company has bad market sentiments towards it. Worth a look to see if the negativity is founded. It's a good starting point for contrarian.

High dividend and high PE are now my tools to look for good company suffering or the so called fallen giants. I bought coca-cola amatil (ASX) at PE>100 and was one of the highest dividend yielding stock in ASX. Coca-cola amatil has a negative retained earnings, yet still pay consistent dividend. With their usual cash flow I think such dividend would be sustainable. Dividend yes, outlook yes, cash flow yes, balance sheet no. Therefore... I'm going to sell some and "lower" my price of purchase to closer to 8 dollars... It's silly but works for me hahaha
http://www.topyields.nl/Top-dividend-yie...-ASX50.php

[specuvestor]

IMHO as per some VBs here, looking at dividend yield I would look at
1) Is this a cyclical industry ie sustainability over a cycle
2) Payout ratio ie MOS for cut in dividend amount or better still compare dividend payout vs operating cashflow
3) Does the asset/business/structure generates incrementally higher cash for the OPMI year on year ie potentially rising payout or is it on liquidation/ stagnant mode

Yield on cost is a good lookback on how well your ROIC has done and lessons learnt, but current yield is important for opportunity costs.

I had this discussion with CF before about capital yield vs dividend yield. Mathematically they can be the same but for long term investing they are quite different. Having 10% capital yield which one has to sell to realise is quite different from having 10% dividend yield in cash. Furthermore the former involves timing of sale which is a big killer for equities whenever one cannot control the time to sell. People who need the money exactly 3/6/9 months from now really shouldn't invest equities for these "earmarked" sums.

Focusing on payback period has it's logic. It is not so much about "free-money", but focusing on return OF money rather than return ON money. A lot of business decisions are based on this cashflow payback period (back of envelope) rather than on excel. It is actually a very simple but powerful risk adjusted focus on returns. At the end of tyhe payback period, you own the asset and the cost of your invesnment back in cash which you can redeploy again. That's actually essentially what Buffett does on a macro level when he say he is the asset allocator and companies just need to return to him the excess cash.

Even China is focusing on just a simple 72 rule methodology of doubling their GDP per capita every 2X5 years.