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
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