Dividend Stocks

I love dividend stocks. They are shares of companies who pay good return every year. If the company is safe and stable, it is as good as putting your money in a bank. When investing in dividend stocks, I also look at the following factors:

1) Management of the company and the business of the company
2) Sustainability of its business
3) How much am I paying for the stock i.e. P/E ratio?
4) What is the value of the company that I am paying for i.e. book value?
5) What is the profit margin and sustainability of the dividend policy?
6) What is the growth prospect of the company and whether the dividend can increase over the years?

The best deal is to invest in a company that can last a lifetime (or at least your lifetime). Most importantly, its dividend policy must be well estabilished. Not only it will pay you dividend over your lifetime, the dividend should increase over the years to cover the opportunity cost of investing that money in the company.

In Singapore, we have several good companies like Singtel and SMRT that belong to this category. Even if one were to fall asleep for 10 to 20 years, he can be pretty sure that these companies will still be around when he wakes up. These companies have good management and their dividend payments are sustainable. They may not have fantastic growth prospects but their returns are still respectable. Normally, these are mature companies that choose to pay out their profit as dividends instead of invest in some less rewarding projects. And, do be careful of companies that pay very high dividend because of some extraordinary gains e.g. one-off sales of investment. This type of dividend payout is not sustainable and the company may not be able to repeat the same dividend payment in the future.

At today's price, the dividend yield of some of the dividend stocks can range from 4% to 6%. As the current crisis deepens, their prices become more attractive and their dividend yield increases correspondly. Good stock, good price and good return - what more can we ask for?

Happy Investing.



Disclaimer: The content in this blog contains purely my personal opinion and it is in no way a substitute for professional financial advice. You should seek advice from a professional financial advisor with any question regarding your financial matters.