Thoughts on Dividend Investing

[donmihaihai]

My mistake on 2nd part has not being pointed out. Nvm...

[CLee]

Making investment decisions based on dividend yield is the same as making investment decisions based on price to book ratio, price to earning ratio, or return on equity. They all center around one main criteria. Sometimes taking such a narrow approach works, and sometimes it doesn't. Tat Hong had a low p/b before it was bought out. Tiong Woon has an even lower p/b but nothing has happened for a very long time. Currently, Indofood Agri has a very very low p/b, but will it be a good buy? I'm sure everyone has their own examples of how they made money by just looking at a single criteria, such a low p/b. But can this method be profitable all the time?

It becomes a problem because when practitioners of such a parochial approach actually believe that this can consistently make them money, it causes them to overlook the other risks and/or issues in their research. I know of some people who bought Swiber/Hyflux debt instruments. These same people have had positive experience with similar high yielding debt instruments bought during an earlier period. When I quizzed them on their knowledge of the issuing company's financial position, the only number they know seemed to be the coupon yield. If you're lucky, the lesson is learnt early in your investing career, and probably, capital lost is small.

Basing an investment solely on dividend yield has its pitfalls too, as already mentioned by thread starter. But as also already mentioned by gzkbel, companies that pay dividend are likelier to perform better. The bottom line is an investor needs to look at everything, to be able to make profitable investments consistently. If you look at dividend yield without looking at debt, you may have bought some of the shipping trusts. If you look at dividend yield without studying the industry and business environment, you may have bought some of the telcos and maybe even sph. If you look at dividend yield without looking at management, you may have bought some Sabana Reit. If you look at dividend yield without looking at cashflow, you may have bought some s-chips.

Terms like value investing, growth investing, and income investing reflect such parochial thinking. Investors serious about making money should not confine themselves -- and therefore their skills -- to a particular term. There is no 'one trick' to making consistent profits.

agree with your thoughts above... investing your hard earned cash should always require analyses in all respects, not just dividend yield.. other factors including long term growth prospects, business environment, cashflows etc all play a part..