Dividend investment

[NTL]

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 Felix,

Understand that you are holding Challenger. Challenger dividend should be around 2.5c, which based on current price gives a dividend of 4.3%. What is your view of divesting Challenger for the 2 you mentioned that gives 6-7% if you are focused on dividend play?

[flinger]

In my opinion, this is what I would.

When the price doubled, I will sell half and recover the capital cost. The dividends earned so far are the profits which I can re-invest.

The remainder need to make decision.

1) I can keep the remainder and earn dividends as long as the stock survives and if the current price falls, I have a big margin of safety and thus there is no loss for me or not much loss if it goes below my margin of safety. I can always sell later with little to no loss for me. However, if the price keeps going up I still benefit from the price movement while still earning the same dividends and if they are doing very well I am sure they will up the dividends.

This seems to be a better option for me as I am not great with finding good investments in the current market. However, others might be able to find better stocks both in yield and appreciating stock price and they should go to other route in selling and moving to alternative investments.

As long as it meets your goals & targets, that's all that matters in the end.

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.

---

Is it not? Along with the dividend hasn't the price of the stock gone up too? you have double benefits?

I would have sold half my stock and become a millionaire and keep the other half earning me risk free dividends for many years....

Is there something wrong with my thinking?

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?

[NTL]

1) I can keep the remainder and earn dividends as long as the stock survives and if the current price falls, I have a big margin of safety and thus there is no loss for me or not much loss if it goes below my margin of safety. I can always sell later with little to no loss for me. However, if the price keeps going up I still benefit from the price movement while still earning the same dividends and if they are doing very well I am sure they will up the dividends.

Hi Flinger,

If you sell half, and the dividend % remains the same, you will only left with half the dividend in absolute amount. So for me, I will divest only when I can find a better alternative, or when I want to exit the investment.

[flinger]

Hi NTL,

Thats true. However, the reason I do that is from a risk perspective that seems to be best choice for me. I often have a target, once it meets the target I sell to recover the capital and keep the rest for growth and dividend. Even if it falls, my risk has been reduced greatly.

It is not the choice most people would take but it fits me been an below average stock picker.

Hi Flinger,

If you sell half, and the dividend % remains the same, you will only left with half the dividend in absolute amount. So for me, I will divest only when I can find a better alternative, or when I want to exit the investment.

[felixleong]

[/quote]

Hi Felix,

Understand that you are holding Challenger. Challenger dividend should be around 2.5c, which based on current price gives a dividend of 4.3%. What is your view of divesting Challenger for the 2 you mentioned that gives 6-7% if you are focused on dividend play?
[/quote]

For challenger I think I will continue to hold, more for the growth than the yield. I think it will make about 5 cents this year, at the current price its about 12 times earnings. I also think it should be able to grow its earnings at about 10-15% this year.
At 12 times earnings I think challenger is pretty fairly priced, but not overvalued that I would sell out.

The other two counters karin and valuetronics I am already vested. Karin will release its results on 27th august, will add more if they continue to improve on their explosive earnings growth from their Apple distribution business.

[NTL]

Hi Flinger,

You are too humble. Based on a recent thread posted, an average retail investor is making around 2.3% pa. I believe you are better than that.

http://www.valuebuddies.com/thread-3689.html

Anyway, everyone have their own personal investment guideline. That's why in the beginning of this thread, I mentioned that not to copy any others. You will be uncomfortable. You are you, and I am I.

May all of us achieve what we are looking for in investing!

Hi NTL,

Thats true. However, the reason I do that is from a risk perspective that seems to be best choice for me. I often have a target, once it meets the target I sell to recover the capital and keep the rest for growth and dividend. Even if it falls, my risk has been reduced greatly.

It is not the choice most people would take but it fits me been an below average stock picker.

Hi Flinger,

If you sell half, and the dividend % remains the same, you will only left with half the dividend in absolute amount. So for me, I will divest only when I can find a better alternative, or when I want to exit the investment.

[weii]

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.

[CityFarmer]

I would like to share view on the following, which may be OT from this thread

Align your investment with Mr. Market, means you are always in favored industries. It will make it harder to pick-up undervalued stock. Picking a growing stock within ignored industries, seems a better idea, IMO

Diversification and MOS aren't serving the same. MOS is a hedge to known unknown, while diversification is for unknown unknown. Both serves differently, if used correctly, IMO

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.

[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.

[CityFarmer]

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.