Long-term investing and short-term trading? (3)

Read? Long-term investing and short-term trading? (3)

Read? Best Dividend Strategy?

What is dividend payout ratio?

By Stock Market Investors

Financial experts' opinions on the importance of dividend payout are mixed. Some say it is an important measurement, whereas others strongly disagree.


The meaning behind Dividend payout ratio (DPR) is the money that is paid out in the form of dividends by the company to its shareholders.

Dividend Payout Ratio Formula

In order to make the appropriate calculations for the dividend payout ratio you should use the following formula:

DPR = Dividends per Share / Earnings per Share

Consider the following example. Company ABC has paid its shareholders $1 per share in the form of annual dividends. Its earnings per share were $2.5. So, its dividend payout ratio will be 40%.

Now that you have got some percentage, you probably wonder how exactly you should interpret it and whether it is good for the company.

Low dividend paying or the absence of such may be explained by the fact that the company has decided to grow and as a result it needs money to fund its growth. These funds can come from dividends and the company may decide to retain some.

On the other hand, companies that pay high dividends to their shareholders may do this since they have reached their maturity and there is no room for growth. As a result, the most efficient and effective use of the profits will be to return them to the company's shareholders.

Therefore, when you interpret a DPR you should do it in light of the company itself and the industry in which it operates.

Secret to successful long-term investing?

'For most markets, the high-yield low-payout strategy was the best performing strategy followed by the non-dividend paying stocks for a few markets,' the analysts said.


In Singapore, stocks that paid no dividends showed the biggest returns over the period examined. But investing in high-yield, low-payout stocks was still the best-performing strategy over a longer period of 15 years examined in an earlier study, the Credit Suisse analysts said.

The secret has already been made known to you if you are a long-term investor who has more than 15 years ahead of you. You just need to be very patient and keep a watch-list of current stocks with medium dividend yield 4-6% and low dividend payout ratio of less 33% and wait for the day when Mr Market becomes so depressed and give them at  high-yield low-payout to you.

But, do you have that type of patience? If you don't have, you may want to train yourself to be one. Why not take up fishing as fishermen are known to be very patient.

Is Your Dividend Safe?

In this low-interest-rate environment, dividend investing is very popular. Where else can you find 4 percent yields in quality companies--particularly yields that are growing every year?

So it's no surprise that investors are pouring their money into dividend stocks and chasing yield.

But investors should have a clear understanding of what they're getting themselves into. Picking a stock with a low dividend yield won't be as destructive to net worth as picking a higher-yielding stock that cuts its dividend.

Typically, when a company cuts its dividend, the share price falls hard. Even leaving the dividend the same can be seen as extremely negative if a company has a long track record of raising dividends.

So when investing for income, yes, you want to receive a solid yield and one that is growing every year. But you need to ensure that the dividend growth is sustainable.

Here's how:

Look at a company's payout ratio. The payout ratio is the percentage of a company's profits that is paid out in dividends. The calculation is simple. Divide dividends paid by net income.

If a company has $100 million in profits and paid out $50 million in dividends, the payout ratio is 50 percent ($50 million divided by $100 million).

Generally speaking, I look for companies with a 75 percent payout ratio or less. That way, if the company reports weak earnings, there is still enough of a buffer to continue to pay (and hopefully raise) its dividend.

Let's look at a real life example.

Medtronic (MDT) has raised its dividend every year for thirty-five years. Over the past twelve months it has earned $3.66 billion. During the same period it has paid out $1.03 billion.

Divide $1.03 billion by $3.66 billion and we get a payout ratio of just 28 percent. That tells me the company has plenty of room to raise the dividend, even if earnings are subpar going forward.

Considering that the company has raised the dividend every year since the Carter Administration, you can be fairly sure that the company will do everything in its power to raise it again next year, no matter what kind of earnings it reports.

Cash Flow is King

Net income is great. We definitely want our companies to be profitable. But there's an even better metric to use instead of net income--cash flow.

Net income is calculated using revenue, expenses and all kinds of made-up accounting tricks like depreciation, amortization, non-cash compensation, etc.

Cash flow more accurately represents how much cash a business took in. Since dividends are paid with cash, not with earnings, I also use cash flow from operations to determine the payout ratio.

Here's an example:

AT&T (T) has raised its dividend for twenty-eight consecutive years. Over the past twelve months it earned $4.68 billion and paid out $10.28 billion for a payout ratio of 219 percent. That could be a scary figure. After all, a company paying out more than twice its profits in dividends might not be sustainable.

But when we look at cash flow from operations, we see that the company generated $35.35 billion in cash flow, making the payout ratio based on cash flow a very comfortable 40 percent.

So even though the company's profits were less than $5 billion, it actually brought in over $35 billion in cash.

Naturally, I'd always like to see higher net income, but as long as the company is generating enough cash to sustain and raise the dividend, I feel confident that it is secure.

A payout ratio starts creeping above 75 percent is a yellow flag. If it continues heading higher, you may want to start looking for a different stock. Dividend payers tend to be safer investments than the average stock. The last thing you want is to get hurt because your dividend payer cut its distribution.

Armed with the payout ratio, not only can you find investments that will provide you with great income, but reliable income as well.

Marc Lichtenfeld is the author of Get Rich with Dividends, A Proven System for Earning Double Digit Returns, the Associate Investment Director of the Oxford Club and the Editor of the Ultimate Income Letter.

Investing Made Simple by Uncle8888 (26)

Read? Investing Made Simple by Uncle8888 (25)

Blue Chips Dividend Investing vs Value Investing

Read? Current Dividend Yield is good but avoid falling into potential Dividend Traps (4)

"Less Analyzing. More Investing!" - Createwealth8888

"To make money from the stock market, it is not how well you analyze it. It is how well you invest into it." - Createwealth8888

Blue Chips Dividend Investing is not the same as Value Investing. Value investing is a belief that someone can discover market gems (so-called under-valued stocks) earlier than the rest of players in the stock market. Value investors believe that they have the means to value a stock and determine its margin of safety.

But, the truth is value investing is RELATIVE. The under-valued is PERCEIVED while the market doesn't think so. So it is just an imaginary set of numbers perceived in the mind of a value investor.

Blue Chips Dividend Investing is different. It is ABSOLUTE! Your dividend yield is absolute. You don't need to be a Maths whiz to compute it. The cash you received from stock dividends is real. In blue chips dividend investing, it is less analyzing and more investing. You don't need to attend AGM to find more.

Blue Chips Dividend Investing is simple. You don't need to spend weeks or months to analyze reports and businesses just to buy them.

You only need to understand the following:

1. Price is what you paid. Dividend yield is what you get for the price you pay for it.
2. High Dividend Yield of at least 6-8%. Past few years of consistent dividend payout or better still an increasing dividend payout.
3. Low dividend payout ratio e.g. 50% or below (High dividend payout ratio e.g. 90% or more will easily translate to high dividend yield. It is natural.)
4. Dividend Growth (Increasing dividend growth will eventually drive the stock price to settle in at the next higher base price in the subsequent market crashes)
5. ROE of at least 12% or more.

You don't need to be brainy for successful blue chips dividend investing strategy. But, you need to have lots of patience and guts to buy during market crashes. More importantly, you also need to have balls to hold while the stock prices are shooting through the roof.

Why blue chips?

Check? Blue chips

Why blue chips dividend investing? It is easy! When the blue chip is turning blue-black. SELL!

High-yield, low-payout stocks stand out

Read Createwealth8888's view?  Not All Dividend Stocks Are Created Equal!

High-yield, low-payout stocks stand out
Strategy tends to outperform others in most rising markets


By CONRAD TAN

INVESTING in stocks that offer high dividend yields but pay out only a small proportion of their earnings tends to outperform other strategies in the long term, according to Credit Suisse analysts.

Outperform: M1 is among Singapore stocks with dividend yields of up to 6.3% a year at current prices but pay out as little as one-third of their profits as dividends

'High-yield, low-payout essentially means you are buying yield stocks that are trading at a low price-earnings ratio', or value stocks, its analysts said in a report on Asia-Pacific equities last week.

Such an investment strategy tends to outperform others in rising markets except in the bubble phase, they said. Also, 'a low payout implies that these companies are retaining cash for growth which also helps long-term performance'.

They analysed stocks in Asia-Pacific markets for the best-performing strategies during the period January 2009 to June 2010.

In Australia, China, India, Indonesia, Japan, Malaysia, South Korea and Taiwan, buying high-yield, low-payout stocks would have earned investors the highest returns over that period compared with other strategies, they found.

The other strategies tested included buying stocks that paid no dividends; stocks that had high dividend yields; stocks with both high dividend yields and high payout ratios; stocks with low dividend yields and low payout ratios; and stocks that had low dividend yields but high payout ratios.

The performances of the various strategies were also compared with that of buying an overall portfolio of stocks for each market.

'For most markets, the high-yield low-payout strategy was the best performing strategy followed by the non-dividend paying stocks for a few markets,' the analysts said.

Stocks that pay no dividends are also called growth stocks. Instead of seeking dividends, buyers bet that the share price will increase substantially so they get large capital gain when they sell the stocks.

In Singapore, stocks that paid no dividends showed the biggest returns over the period examined. But investing in high-yield, low-payout stocks was still the best-performing strategy over a longer period of 15 years examined in an earlier study, the Credit Suisse analysts said.

Among those they consider to be high-yield, low-payout Singapore stocks are telco M1, rig builders Keppel Corp and Sembcorp Marine, transport group ComfortDelGro Corp, real estate developer Allgreen Properties and conglomerate Sembcorp Industries. (Createwealth8888: Yeh, I have Kep Corp and Semb Corp in my portfolio)

These stocks have dividend yields of up to 6.3 per cent a year at current prices but pay out as little as one-third of their profits as dividends. All are rated 'outperform' by Credit Suisse.

Other stocks, such as Fortune Real Estate Investment Trust and property firms MCL Land and United Engineers, have dividend yields of over 3 per cent a year but pay out less than a quarter of their earnings as dividends.

High Dividend Yield Stocks? - Part 8

Read older post on? High Dividend Yield Stocks? - Part 7

I believe all investors will love high dividend yield unless you are a day trader who don't really need to care on dividend.

Imagine a high dividend yield bandwagon is rolling past you. A few people on the back of the wagon are partying and playing music of their lives and singing the song of high yield. You may be unable to resist the sweet sounds being played and run to join the party.

But, before you jump on the bandwagon, you may want to wonder a bit as there can be more than one way of looking at high yield; its associated risk of future dividend cut and impact to its stock price.

A. High Yield High Growth

I don't think you can find it now in the current market. If you can find it, don't tell anyone. Sell your car and mortgage your home and load it up! Just kidding. LOL

You are more likely to find high yield high growth stocks during big bear markets but you may not have courage at that time to load them up so it is pretty hard to load up high yield high growth stocks in your portfolio.

B. High Yield Low Growth

Even in the current market condition (STI at 2936 quite near to its recent high), you can still find some low hanging easy reach high yield stocks. How come?

Unless you believe that market is lack of smart money or big boys, otherwise there may be valid reasons why these big boys or smart money choose not to chase them up and naturally it will cause the yield to fall for new buyers.

High yield may be an indication of low growth and investors are expecting higher income to compensate for low growth so market may have priced in that expectation.

C. High Yield High Payout

High yield due to high payout e.g. company paying out 90% or more of its earning. Future dividend is never a sure thing and can be cut.

For companies that are paying too much of their earning as dividends will have less reserves and they are more likely to cut dividend when earning is hit.  How will market react to its dividend cut? Is this a risk worth taking for chasing recent high yield?

D. High Yield  Asset Light

High yield due to company changing strategy from asset heavy to asset light. This is not sustainable in the long run as there is a practical limit to how light asset can be.

E. Medium Yield High Growth

Medium yield due to lower payout e.g. company paying less than 50% of its earning and using the rest to fund its growth. There is more opportunity for the market to price in its capital appreciation in the long run; but less likely for dividend cut since its dividend payout ratio is not high so there is more room for earning hit. In the long run, a lower payout may actually provide a more steady yield even in bad economy.

This may be a better dividend yield strategy for a long-term investor.

In Conclusion

Dividend is a sub-set of earning so it is the future earning that counts. So don't fall into high yield trap! The attractiveness of RECENT high yield ALONE may not drive stock price. When the stock price increases, the yield decreases so the recent high yield can only drive the stock price to a certain level and become unattractive and stop there.

In the long run, it is high growth that drives higher earning which will then drive stock price and may  increase your personal purchase yield  but recent buyers will get lower yield.

Higher capital appreciation can mean that you have already collected multiple years of dividends well in advance. A multi-bagger with high yield is the dream of every investor who loves yield.

I love A and E more. How about you?


Read more? High-yield, low-payout stocks stand out

High Dividend Yield Stocks? - Part 6

Read? High Dividend Yield Stocks? - Part 5

Most retail investors will love high dividend yield stocks. Me too and no exception. But just that I don't easily get excited over it.

High Dividend Yield

Recalling some pointers in the earlier posts

• Nothing is forever
• Just because a company pays a dividend now is no guarantee that it will forever, or that the company will even continue to exist. Nor is it any guarantee that the underlying stock is stable
• How does the high yield came about?
• The high yield come from the company paying out 90% of its earning as stock dividends. With little retained earning, it is very hard for the company to grow itself using internal financial resources.
• The high yield come from the company paying out less than 40-50% of its earning as stock dividends. The company has retained most of its earning either for financial cushions or to build up its internal resources to fund its future growth.

Sustainable dividend payment

Let assume:

Company A pays out 90% of its earning and that give you a 10% dividend yield while company B pays out only 40% of its earning and that also give you the same 10% dividend yield.

Which company do you think will be able to sustain your dividend yield at 10% if its future earning takes a hit?

What is your answer?

A or B?

Company A that pays too much of its earning as dividends will not be able to sustain the same dividend payout if its earning gets hit. It will have to reduce its dividend payout and cause your dividend yield to fall below 10%

Company B that pays less of its earning as dividends is in better position to sustain the same dividend payout even if its earning is reduced and your dividend yield is more likely to be sustainable at 10% over economy cycles.

Sustainable Growth

When the company keeps paying out most of its earning as dividends how can it build up its internal financial resources to grow the company? Its growth is not sustainable in the long run without its own internal significant war-chest.

That are two reasons why I don't like Company A.

Lastly

Have you ever wonder how come STI is approaching 3,000 and the current dividend yield of Companies A are still hovering at such high level?

Do you mean that the market is short of savvy investors not interested in accumulating high dividend yield stocks ah?

Think again!

9 Stocks That Have Been Paying Uninterrupted Dividends for More Than 68 Years

By Brian Richards

  

Before the late 1950s, most stock investors focused not on capital gains but on dividends. According to Fidelity Viewpoints, "For many years, dividends were the primary reason to invest in the stock market."

Given the terrible payouts on savings accounts and most bonds right now -- 215 stocks in the S&P 500 have a higher yield than a 10-year Treasury bond -- 2011 marked the Great Dividend Resurgence. Of the top 10 most-read Fool.com articles last year, eight were dividend-focused. Our free report detailing a dozen or so high-yielding stocks, launched late in 2010, has been downloaded nearly half a million times.

And in a happy coincidence, it's good to be a dividend investor again.

Cash in your pocket

Out of the approximately 7,000 companies that report dividend information to S&P Indices, only 101 cut their dividend last year. That figure is down from 145 in 2010, which was down from 804 in 2009. During the year of reckoning (2008), 606 companies reduced their dividends.

Not only are fewer companies cutting payouts, more are increasing them. In February alone, "two dozen" companies have raised their dividends, according to Dow Jones Newswires, bringing the 2012 total number for dividend hikers to almost 60. And we're six weeks in.

3M (NYSE: MMM  ) is one example. On Tuesday, the conglomerate said it would raise its quarterly dividend 7%, marking the 54th straight year it has increased the payout. Big picture, S&P Senior Index Analyst Howard Silverblatt expects dividends to rise a remarkable 11% this year, as my colleague Morgan Housel noted.

That double-digit gain is feasible given that companies are flush with cash. As of late January, U.S. corporations had total cash reserves greater than $2 trillion, "close to a 50-year high in relative terms," wrote Time. Meanwhile, the S&P dividend payout ratio -- dividends paid as a percent of earnings -- is close to an all-time low.

Dividends = discipline

As I've written before, I love companies that have shown a commitment to raising their payouts (I've long owned 3M in my own portfolio). As an owner, you can rely on inflation-beating dividend payments and feel secure in the academic studies showing that dividend-paying companies are better-disciplined stewards of shareholder capital.

That 3M has increased its dividend for more than half a century is impressive. Even more so, the company has paid dividends without a single interruption for more than 95 years, a remarkable streak that is more common than I first thought.

Consider that the nine stocks listed below have all been paying dividends since Franklin Roosevelt was in the White House -- at least -- an awesome consistency that shows a culture of discipline, determination, and stewardship at these firms. (To trot out my favorite dividend one-liner, professor Aswath Damodaran has said "dividends are like getting married; buybacks are like hooking up.")

To evaluate how attractive these stocks are now,I've also included their five-year dividend growth rate -- because dividend growth is at least as important as dividend consistency.

Company	Paying Uninterrupted Dividends Since	Yield	Current Yield Higher Than 10-Year Treasury?	5-Year Dividend Growth Rate
3M	1916	2.5%	Yes	3.6%
Coca-Cola	1920	2.7%	Yes	8.7%
Abbott Labs (NYSE: ABT  )	1924	3.4%	Yes	10.2%
Colgate-Palmolive	1895	2.5%	Yes	12.7%
Procter & Gamble (NYSE: PG  )	1890	3.3%	Yes	11.4%
General Mills	1944	3.1%	Yes	10.8%
Johnson Controls (NYSE: JCI  )	1887	2.2%	No	11.6%
United Technologies (NYSE: UTX  )	1936	2.4%	Yes	12.8%
Church & Dwight	1901	1.4%	No	39.2%

 

Dividend growth rate data from MSN Money.

 

These dividends may not survive another six decades. But when searching for the kinds of income-producing blue chips that will allow you to rest easily, this list is a great place to start. Or to put it more broadly, to find the kinds of stocks that will consistently pay you a good portion of their earnings (or better yet, free cash flow), start with those that have shown a long-standing pattern of that behavior.

--------------------


Createwealth8888:

So dividend income for a life time is not a dream?



 

Not All Dividend Stocks Are Created Equal!

Read? High Dividend Yield Stocks? - Part 8

Seriously looking at their dividend payout ratios and their growth potential as not all dividend stocks are created equal.

1. Not all Dividend Stocks have high yields

Stock price appreciation and high yields are great for those who bought them cheaper from the past Big Bears, but it doesn't help you if you're buying now. If you want high yield, you must be able to wait patiently for the next Big Bear to give them to you.

2. Not all Dividend Stocks will see their stock prices appreciate quickly

It is a market myth that high tide will rise all boats. In reality, it will not.

3. Not all Dividend Stocks have healthy dividend payout ratios

The key to sustainable dividend growth is to keep dividends as a manageable percentage of net income. A low payout ratio will definitely make it easier for companies to increase dividends without exhausting profits.

How to become rich in stocks??? (3)

Tired of seeing the same old pic of bunnies again and again.

Time for a change. See my son's 16 year old smelly rabbit at his bed that he refused to throw it away!

Bunny Growth or Bunny Yield???

Read? How to become rich in stocks??? (2)

"Having said that, nothing wrong with using a high yielding strategy. I use it to provide cash flow to pay for my living expenses. But I am under no illusion it will help grow my net-worth... " - SMOL

Excellent comment from SMOL. Clap clap clap!

Yeah. We can't buy food with our multi-baggers! Paper profit is absolutely useless for our hungry stomach.

Read? Current Dividend Yield is good but avoid falling into potential Dividend Traps (4)

"I believe there are many bloggers, cboxers, forum particpants and investing kakis telling you that focusing on stock dividends as passive income is an important key to successful investing. Agree, right?

Perhaps, I am the rare blogger who dare to challenge you to rethink your investing strategy of focusing too much on passive income when you have no real need for it at this stage of your long investing journey and especially when you are not expecting to 'retire' from the workforce soon." - Createwealth8888 aka Uncle8888

Let me ask you this question:

When you have no real need for cash flow to pay for living expenses, why do you want more cash in form of higher stock dividend from high dividend payout ratio from your stocks?

I would expect the frequent answer to be: "More cash to re-invest"

Good answer: To re-invest!!!

Next two questions for you to think over carefully before answering them for yourself.

Who knows you may have a mind flip after that.

First question:

Is 10% yield on 90% dividend payout ratio = 5% yield on 45% dividend payout ratio?

Second question:

Is retained earning = Re-investing?

Dreaming Bigger???

One question was asked during Analyst Briefing session on Keppel Land privatization about its future dividend payout post Keppel Land.

The answer from Keppel CFO is that Keppel Corp does not have formal payout policy; but one can refer to its dividend payout history.


CW8888:

Assuming 45% dividend payout ratio on $1.18 EPS = $0.53


$0.53/$1.32 = 40%

40% yield on cost coming?

Dreaming?

Are High Ratio Dividend Payout Stocks Make A Low Risk Investment?

Do you pick a stock primarily due to its high ratio dividend payout or you pick the stock primarily for its future growth and dividend is just secondary reason.


High ratio dividend payout means that the company is paying most of its earnings out as dividends, and doesn’t leave much for reinvestment in the business. Then how does the company grow? If the company cannot grow, it could well mean stagnant earnings per share. Do you believe the stock price will appreciate if the company's future earning is more likely to be stagnant?

What if the company all of a sudden decides that it needs cash for anything like merger or acquisition or if its earnings drop due to an economic contraction, chances are very high that the dividend payment, which was unsustainable in the first place, would be first on the management’s chopping block? Will the stock price tumble?

Are High Ratio Dividend Payout Stocks Make A Low Risk Investment? - Part 4

http://createwealth8888.blogspot.com/2009/12/are-high-ratio-dividend-payout-stocks_19.html


The idea behind All Dividend Income investing may sound low risks and logical.

But very often, these investors have forgotten about the serious impact of inflation and under-estimate the power of compounding returns to fight inflation.

Every year, inflation will reduce your real returns and erode the purchasing power of your original capital that was invested.

If you plan to derive your passive income in this way, then just how big an dividend income can you expect in going through this route?

It will take a real big account size to produce sufficient sum of dividends to be able to re-invest them for compounding effect. Furthermore, when the market is trending up, a pure dividend yield investors will find it more difficult to re-invest as the dividend yield will be falling as well.

Another serious consideration is the real purchasing power of your original capital after so many years. For example:

If the dividend yield is 10%, it will take 10 years to recover your orginal capital. But, after 10 years, what will happen to the real purchasing power of your original capital?

Worse still, if the dividend yield is only 5%, it will take 20 years to recover your original capital.

There's also no guarantee that the companies will be able to continue year-on-year to pay out good dividends. If companies start to struggle due to change of management or business environment it may cut or eliminate their dividends.  When dividend yielding stocks fail to deliver, you can bet the stock price will plunge faster than expected and can remain at that level for a long time. By then the stock price could be down considerably and the inflationary impact may completely destroy the real purchasing power of your remaining or recovered capital.

The real enemy of any long term investor is inflation.

Do you seriously think that with an all dividend income strategy, you can really fight against your real enemy?

A reasonable strategy to fight against inflation is to include investing in some growth companies and also to periodically recover some invested capital together with their realized profits and to re-invest them to tap into the magical power of compounding effect to fight the real enemy.

Dividend Growth Points the Way to Prosperity

Dividend Growth Points the Way to Prosperity
Monday July 28, 12:00 pm ET
ByJonathan Heller,

In the midst of another earnings season, we are yet again reminded of the many ways to measure a company's recent success (or lack thereof). It's all about earnings, at least that's what's typically reported first.

I'm not trying to denigrate earnings as a metric, but the variety of methods used (basic EPS, diluted EPS, EPS from continuing operations, the list goes on), can be confusing to investors. Even the analysts don't always agree what the most appropriate measure is.

Beyond that, it is clear that earnings can lie -- and I'm not even referring to fraud, but rather legal methods company's can use to make the results look better, at least in the short term.

Dividends, however, don't lie. I do acknowledge however, that David Einhorn has made a compelling case that this may not be true in the case of Allied Capital , but that's another story.

Dividends must be paid in cash, and cannot be manipulated the way earnings can. What you see is what you get. A company cannot declare a $.25 dividend and pay out $.15, nor can it decide to pay it out in the form of excess inventory instead of cash.

The downside, however, is that companies that run into performance trouble can cut their dividend, or eliminate it altogether. In some of these cases, the punishment (i.e. a declining stock price) is severe, and it might have been better had the company never committed to a dividend policy in the first place.

With that as a backdrop, I am a big believer that dividend growth can be an excellent indicator of true company health, performance and a confident management team. This is not about yield, but rather rapid and perennial growth in what a company is willing to return to its shareholders.

In a way, this is self-policing as companies must keep their payout ratios low enough to allow for reinvested capital, and room for further growth.
The intent here is not to suggest this is the only way to truly measure company health or growth, but rather one method that can be applied to dividend-paying companies. We recently screened for dividend growers meeting the following criteria.

(As always, with any stock screen, further research on each individual company is paramount):

• Market cap between $500 million and $10 billion. (This is intended to identify smaller companies which might have room for further growth.)
• A payout ratio less than 30%. (Payout ratios that are too high are not sustainable, and may lead to dividend cuts or eliminations.)
• Total debt-to-equity less than 30%. (Too much debt can constrain a company's ability to pay dividends.)
• Consecutive increases in dividends for at least seven years. (This demonstrates both a strong track record, and management's intent.)
• Five-year dividend growth rate at least 10%. (This indicates rapid increases in dividends paid.)
• All industries except financials. (I am skittish on financials at this point.)

Are High Ratio Dividend Payout Stocks Make A Low Risk Investment? - Part 2

http://createwealth8888.blogspot.com/2009/11/are-high-ratio-dividend-payout-stocks.html

Stocks can have high dividend yield for two reasons:

1. The company's future earning doesn't seen rosy and investors are valuing it at lower stock price causing the yield to increase temporary and not really attractive to potential investors.
2. The company is unfamiliar to investors, its price will be a poor reflection of the stock's true value. But, if the company has been around for many years, can the company still unfamiliar to the market?

Dr Michael Leong is a private investor who focuses on investing long term in selected stocks and shares has this advice in one of the chapters in his book: "Your First Million" on buying stocks based solely on "dividend yield" and he doesn't think that is the right way. Capital appreciation is far important than high dividend yield. Go and read this chapter to find out more.

I also love dividend play stocks but I treat the dividend as safety net if the stock price falls temporary but not as a buying decision. Technically on chart-wise, I must see that the stock price has the probability of moving higher before considering it in the watch-list.

Fisher's Eight Investment Principles

1. Buy companies that have disciplined plans for achieving dramatic long-range profit growth and have inherent quailities making it difficult for newcomers to share in that growth.

2. Buy companies when they are out of favour.

3. Hold a stock until either (a) there has been a fundamentall change in its nature (e.g., big management changes), or (b) it has grown to a point where it no longer will be growing faster than economy as a whole.

4. De-emphasize the importance of dividends. (CW8888: We should be looking at both dividend and dividend payout ratio at the same time, and not just based on dividend alone. High dividend payout ratio will return high dividend yield. It is expected and nothing extraordinary about it. This is how market works in the long-run)

5. Recognise that making some mistakes is an inherent cost of investment. Taking small profits in good investments and letting losses grow in bad ones is a sign of abominable investment judgement.

6. Accept the fact that only a relatively small number of companies are tryuly outstanding. Therefore, concentrate your funds in the most desirable opportunities. Any holding of over twenty stocks is  a sign of a financial incompetence.

7. Never accept blindly whatever may be the dominant current opinion in the financial community. Nor should you reject the prevailing view just for the sake of being contrary.

8. Understand that success greatly depends on a combination of hard, intelligence, and honesty.

SAFE HAVEN IN REITs ???

Just For Thinking ....

Read? How to become rich in stocks??? (3)

One analyst's view:

As for REITs, OCBC’s Eli Lee likes CapitaMall Trust, which offers a dividend yield of 5.1%. The trust also has significant exposure to suburban retail malls that has proven to be resilient in macroeconomic downturns. It has also shown a good track record of executing its asset enhancement programmes, with the completion of the Bugis+ and Jcube shopping centres. Lee has a “buy” recommendation and a price target of $2.02.

Top 20 dividend-yield plays with market caps above $2B

Look for Rank  No 18

Keppel Corp offers dividend yield at 4.25% and secured order book as on Q1 2012 at $8.4B

I have found one good practical exercise:

Is 5.1% yield on 90% dividend payout ratio better than 4.25% yield on 51% dividend payout ratio?


How about comparing Kep Corp to top S-REIT - Sabana?

S-REITs

Do your own thinking

Passive Income and/or Eating Off Our Capital (War Chest)???

How many investment bloggers will deliberately choose to eat off our capital (war chest) as supplementary to passive income strategy as sustainable retirement income for life?

 
Our passive income strategy may come from dividend incomes (dividend payout ratio of 90% or more), growth dividends (dividend payout ratio of 60% or less) and rental income, etc

Dividend incomes are not that difficult to find. Come Monday, we can get from the market at least 6% yield; but not for growth dividends. For that, we may have to wait for years for Mr. Market to throw them at us. While waiting for growth dividends opportunity; so how?

One way is to eat off part of our capital (war chest) while waiting. 

This will be the cost of premiums for growth dividend and capital appreciation investing strategy. This may not be the preferred investing method by most investment bloggers for financial independence; but it is not necessary bad.

Uncle8888 is taking this approach as he is hungry for growth and not giving up to find more multi-baggers.
 

 

Current Dividend Yield is good but avoid falling into potential Dividend Traps (4)

Read? Current Dividend Yield is good but avoid falling into potential Dividend Traps (3)

How to avoid falling into potential dividend trap?

One of good way is to change your view of looking at dividend yield.

Many income and yield chasing investors tend to view dividend yield in this way. So much focus on high dividend yield e.g. 8-10% and less concern on high dividend payout e.g  90%.  Potential capital appreciation is just nice to have.

How about changing your view to this way?

Primarily focus on potential capital appreciation and dividend yield is just the safety net that provides enough cushion if the stock price doesn't appreciate but fall.

Current Dividend Yield is good but avoid falling into potential Dividend Traps (3)

Read? Dividend Yield is good but avoid falling into potential Dividend Traps (2)

Recently, I realized that I have been reading more blog posts championing dividend yield investing as the way forward to invest as the market diving deeper into the Bear Market. We can easily understand the sentiment of fears in a bear market of falling stock prices. It can hurt us badly and force us to appreciate the attractive bird-in-hand element in dividend yielding stocks.

But avoid falling into dividend trap by seriously looking and evaluating their dividend payout ratio and potential capital appreciation when the Bull comes roaring back. In Bear market, potential good dividend yield and high capital appreciation is not mutually exclusive.

For example, I realized that my long-term holding position in Noble which is never a dividend yield play stock still gave me decent yield for the past 3 years: 6.7% (FY 2008),  5.3% (FY2009), and 4.5% (FY2010).

Noble reports its earning and pays its dividends in USD so dividends received will be subjected to currency risks.

Best Dividend Strategy?

Read?  High-yield, low-payout stocks stand out!

Learn to look at TSR (Total Shareholder Returns) when investing in the stock market.

High dividend High Payout = Good TSR
High dividend High Payout + Capital Growth = Better TSR
High dividend Low Payout + Capital Growth + Dividend Growth = Best TSR

When investing, go for the Best TSR!