I notice some striking similarities on how I manage my
personal cash flow and my business cash flow.
As I was writing this post, I think a good cash flow can be
as simple as the acronym S M A R T Y.
How is your cash flow this month?
Be Consistent, Be Free.
Oh I added a visual for my mortgage tracking progress.
How was your July?
Be consistent, be free.
The average life expectancy of Malaysian born in 2023 is 72.5 (M) & 77.4 (F).
By racial
breakdown, Malays - 71.5 (M) & 76.4(F). Chinese - 74.4 (M) & 80.2 (F).
Indian 67.6 (M) & 75.9 (F). Middle age for us, is 35, not 40.
As I
observe people in my community, I notice many of us go through life mindlessly.
Making poor financial decisions that jeapordise our family future.
We are sold
this idea of YOLO, where in order to live without regrets, we MUST reward
ourselves regardless of the consequences.
In my
community, it is now a norm to:
There is a
product for every phase of our life, don’t you think it is fishy?
I’ll leave you to figure it out. I hope you make it out of the wheels.
Be Consistent, Be Free.
The Details:
Work Out
the Numbers
Before you
set aside money to invest in dividend stocks, you must first work out the
numbers.
For
example, to build a MYR1,000 monthly (or MYR12,000 yearly) dividend portfolio,
by using EPF return as benchmark – 6% (for ease of calculation) - the maths
work out to be:
12,000 / 0.06 = MYR 200,000
MYR1,000 a
month isn’t a lot and a MYR200,000 portfolio is significant. Not so easy,
right?
If you manage to invest MYR2,000 a month, it will take you 6-7 years to build this portfolio to replace MYR1,000 of your income. It will take a lot of sacrifices. But start anyway.
Dividend
Stock vs Growth Stock
Dividend
payout, will affect stock price. That is why you rarely see dividend share
price swing wildly.
Companies
that are growing, usually reinvest their profit (and does not pay a dividend),
which in term generate more profits for the company. This will be reflected in
the increase of share price.
You may however, come across companies that pay less dividend, while retain more profit for business expansion.
Don’t
Just Chase Yield
If a stock
price has plummeted recently, its dividend yield shown will look attractive.
This is because dividend yield is calculated based on the past year’s payout in
relation to the current share price.
This paints
a misleading picture.
Some
companies (such as Airasia-Capital A), may have sold of assets/business, and
incur a profit. This profit may be pay out as special dividend, jacking up its
dividend yield for that particular year. Again, paint a misleading picture.
Good
companies, pay out dividend from its free operating cash flow. The warning sign
of a unhealthy company would to pay out a dividend by taking a bank loan, money
raise from right issues, or tapping on cash reserve. I have one such company in
my portfolio – HEVEA. HEVEA lost 3.7m in 2023 and is paying out 5.7m in
dividend LOL (although the company is cash rich – with MYR118m).
Consistency
Above All Else
One of my
worst picks as dividend payer is Astro Holding. This is a classic example of
dividend stock that is unable to sustain its payout. Marred by lack of
innovation, high debts, and recent extra tax bill imposed by IRB – the company
has lost more than 90% of its value in 10 years.
Maybank
should be the cream of the crop. With a 52 cents dividend and above for the
past 10 years.
What is
good yield?
Since EPF is the golden standard in Malaysia, anything that matches EPF ~5.x % return is consider a win.
The key
points to remember when crafting your dividend portfolio are:
1. Know your numbers
2. Don’t chase yield alone
3. Watch for value trap
4. Beware of tax implication
5. Dividend stocks = less growth potential
6. Current yield does not guarantee future return
7. Dividend investing is a LONG game
If you are like me, a sucker for dividend, this is how I build a dividend portfolio.
The Basics:
What is
a dividend/Income?
It is a
form of pay out to the shareholders.
When a
company makes profit, they would either reinvest the money into the business, keep
the money as retained profit, use it to buy back their shares, or they could
pay out as dividends.
For REITs,
it is known as income distribution instead of dividend. Income distribution is
subjected to 10% tax.
Dividend
& Income Distribution Policy
Some
companies have dividend payout policy. Maybank, pays out between 60-80% of
their net profit. REITs in Malaysia are required to pay out at least 90% of its
income to shareholders.
Who pays
a dividend?
Usually,
matured (blue chip) companies with little growth potential tend to pay out most
of their profits to shareholders. These blue chips companies are relatively
stable.
Alternatively,
REITs are good example of Trusts that are required by law to pay out most of
their profits.
Why build
a dividend portfolio?
Everybody
loves ‘passively earned’ income. The simplest way to achieve that is through
dividend investing. Many dividend investors strive to achieve financial
independence through dividend investing. Once the dividend payout reaches the
inflection point, you are literally financially free.
Your
dividend will be enough to pay for your expenses.
What’s
in a Dividend Portfolio?
I strive to invest >60% of my household income every year. I invest heavily in my children's education & development. I am thankful as I do not have expensive taste for cars, as I often view cars as a wealth killer (but I was not always like that).
I am a cash flow-over-capital growth kind of guy. Income generating assets excite me more than gain coming from capital appreciation. ...
