wrote an article titled “Investing for dividend” just two days ago in the link below:
I was particular amazed by the comment below here and I love it:
Dividend investing is also win-win way of making money.
Good karma everybody!]
Good karma everybody!]
If I buy a good dividend stock and hold it. I receive dividend every year for my expenses. I can play golf every week at different golf courses around the country or in the nearby countries, go for nice dinners, pay my utility bills every month, and occasional travel around the world etc. with the dividends without having to sell my shares.
Most of all, I buy the good dividend stocks from someone else at a reasonable price from him, which he is happy. I still can enjoy the good dividends and I don’t have to think of those tricks on how to sell off the shares high to gain at the expense of others buying high from me.
Yes, a win-win way of making money. Good karma. I like it.
I like this comment too:
Berkshire never paid dividend for years, because the management retained 100% of earnings and reinvested or allocated all the $ into fantastic growth companies. The rate of return keep on increasing, and the return average above 20% per year. The stock has a market capital of above 100 million per lot. Dividend is like father giving a bit of "ang pau" to his children. Company that can generate fantastic growth of EPS is the right one to invest and the ROE and ROTC automatically increased.]
I agree with the above statement. If I had money to invest in 1970, and know about investing in US, I would invest in Berkshire Hathaway and keep the share until now. I would be extremely happy by now. But BH is only one out of the thousands of companies listed in the New Yoke Stock Exchange. How would I have chosen BH to invest then?
Here is another one.
Hello, please have a look at google. that's is a giant castle in the air and its growing and growing. oh ya, it didnt pay dividend for years and years. isn't it a good share?]
Hello there. I agree with you, absolutely. Goggle is a fantastic company now, and it will be for quite some time to come. No doubt about it. I believe your capital gain has been fantastic since you have invested in it when it was first public listed a few years ago.
Did you invest in many other Dotcom companies in the late 1990s when they were first publicly listed such as Boo.com in UK, Learning Company, Webvan.com, Pets.com, Kozmo.com, Flooz, EToys, Napster, and hundreds more of them in US?
Aren't they supposed to b high capital appreciation type of companies? Where are they now?
Here is a great comment:
Dividend investing is only for roti canai & teh tarik money. A serious investor does not allow any thoughts of mediocre dividends from distracting him from the real, more substantial, more worthwhile pursuit of capital appreciation.]
For many people, they could have thought that what DreamPredator mentioned above is true. They may think that if they buy a RM1 stock which pay a 5% dividend yield, they only get 5 sen back in a year. If he invest RM10000 in the stock, he only get RM500 ringgit a year, and he needs to hold 20 years to get back the capital.
No wonder he said “Dividend investing is only for roti canai & teh tarik money”.
But is that what would happen; you pay RM10000 for the stocks and receive RM500 a year, and only after 20 years, you get back your capital?
This was what I have written in the article:
“The share price will go up because of the growth in dividend. The dividend of Apollo was 7.4 sen in 2008 when it was trading at about RM2.50. The dividend yield was 3.0%. Its dividends has increased to 25 sen now and at RM4.98, an even more attractive DY of 5% when the share price has risen by 100% in 7 years, or a compounded annual growth rate of 10%.”
May be I should have put the title as “Investing for dividend yield” instead as commented below.
There is a difference in investing based on dividend yield and investing for dividend. At least if the company can give out dividend consistently it is making profit.]
Thanks spermwhale for your input.
Everybody knows IBM is a fantastic growth company andthat its capital appreciation is high. If you have invested in IBM in 1950, you would have gotten a very good compounded annual return (CAR) of 11.2% of which 9.0% of capital appreciation, and 2.2% in dividend up till 2012.
Exxon Mobil, a high dividend stock’s price appreciation is with a CAR of 7.6%, much lower than that of IBM, but its dividend yield is 4.7%, giving a total CAR of 12.3%, 110 basis points higher than that of IBM.
Of course we talk about long-term investing. Sorry, we are fundamental value investor. We talk about long-term. And a difference of just 1.1% return over 62 years is hell of a difference in total cumulative return.
That is how fundamental value investors invest, unlike this one:
It's not the 'method' that is important. So, no need to be distracted by any talk of 'method'. One goes by what works for oneself.
My 'method' is based mostly on watching price action, feeling the pulse of the investing people via forums, biz section of newspapers, biz mags, gut insticnt etc. ... No FA, not TA, no MACD for me ... Only MacD I find inspiring ...
But I quite regularly beat the performance of my remisier ... Honestly ...]
My 'method' is based mostly on watching price action, feeling the pulse of the investing people via forums, biz section of newspapers, biz mags, gut insticnt etc. ... No FA, not TA, no MACD for me ... Only MacD I find inspiring ...
But I quite regularly beat the performance of my remisier ... Honestly ...]
The above gentleman has his own way of investing. Each has his own way of investing, and this gentleman obviously has been doing extremely well. Congratulation.
But no thanks, fundamental value investors are quite stubborn people. They usually stick to their own principle; invest for long term, share the fruits of the growth of the company, and hence its dividends.
Is fundamental value investing, or dividend yield investing that complicated?
KC only makes investing look so complicated. One foot hurdle is so simple, but he want to cross a 7 footer.]
I don’t think so. As a fundamental value investor, I prefer to jump over a stick laid on the ground. I think those flags and pennants, teacups, shooting stars, doji, heads and shoulders etc. are much more complicated and abstract than dividend yield. I just do not have that intellectual level to comprehend all those complicated terms.
That is why I choose my circle of competence.
I have mentioned in the article below that the dividend yield investing strategy has worked in the US with the academic research. It has also worked in Bursa.
I always like to follow investing strategies which are simple, intuitive and have proven worked with solid evidence and not complicated terminologies and those merely hearsay strategies.
I have also explained the importance of dividends in the same article above, such as:
- It is real
- It provides a “floor” to share price when bear stampedes
- Dividend yield keeps me in close touch with the real world when there is irrational exuberance in the market.
- It prevents me from being side-tracked by irrelevant events such as bonus issues, share spit, “free” warrants etc.
Think of it, I do have some “experience” in dividend yield investing strategy. The “experience” was not real experience per se, but the after-thought about it as shown below.
Dividend Yield Investing Strategy, My “Experience”
As usual I would refer to my own portfolio put up in i3investor on 21st January 2013 by Tan Kian Wei, one of the major contributors in i3investor as shown in the Appendix and in this link, just to show that it is not “Empty tong, pong, pong, pong” type of claims.
Those stocks were chosen based on fundamental analysis, mainly based on the principles of Joel Greenblatt’s Magic Formula Investing Strategy in the link here.
It was not base on the dividend yield investing strategy as I have said, I didn’t care much about this strategy as I followed the teaching of the book that dividend policy doesn’t matter in investment return. But the dividend yields of which stock was computed retrospectively were based on the prices and the dividends then.
The portfolio of 10 stocks were just happended to be all paying dividends as shown in Table 1 in the Appendix. All stocks were coincidently with dividend yield of more than 3%, higher than the prevailing fixed interest rate from the banks then, except for Kimlun and Plenitude.
Here are the salient features of the return of the portfolio after a holding period of 2 years and 9 months until today on 26th October 2015.
- The portfolio return a total of 117.4% compared to the broad market return of 10%, or an excess return of a whopping 107.4%.
- SKP Resources, with a high DY of 9.7% then, has a high total return of 352%, Prestariang with DY of 5%, returns 379%, and Pintaras, 4% DY, returns 187%.
- There are no losers at all.
- The low dividend stocks of Kimlun at DY of 1.8% has a return of just 3.5%, underperformed the market of 10%.
- Not all high dividend stock ahs high total return. Pantech with a high DY of 4.5% then, underperformed the market. That is another story.
Conclusions
Investing in dividends doesn’t mean just collecting a fixed amount of dividends every year. Dividends general grows with the growth of the company as time passes. The share price will appreciate too as dividend grows. This will also provide the capital appreciation besides the growing dividends.
It has shown that dividend yield investing strategy is a viable investing strategy which could provide extra-ordinary return to investor.
Most of all, it is also a safe investing strategy.
Are you interested to invest in the stock market higher expected return safely?
Feel free to contact me at
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