As from April 2013 my Journey in Investing is to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

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This blog is authored by an old multi-bagger blue chips stock picker uncle from HDB heartland!

"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

"For the things we have to learn before we can do them, we learn by doing them." - Aristotle

It is here where I share with you how I did it! FREE Education in stock market wisdom.

Think Investing as Tug of War - Read more? Click and scroll down

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Value Investing
Dividend/Income Investing
Technical Analysis and Charting
Stock Tips

Sunday, 21 November 2010

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.

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