Thursday, March 04, 2010

Investing In A Stock For Its Dividend Yields III

  • Raymond said...
    Want reliable dividend yield? Look for companies that sell consumer staples with strong brand names, quality earnings, strong pricing power, transparent management, or put in simply, wide economic moat. Names that fit in are such as Nestle,Dutch Lady, F&N, Ajinomoto etc.

    Or buy into utilities with recurring incomes and steady cashflow, such as YTL Power and Plus.

It seems this topic seem to have caught interest.

Does investing in a stock for a dividend yields work?

Well all I have shown in one stock example Uchi and in the postings Investing In A Stock For Its Dividend Yields and Investing In A Stock For Its Dividend Yields II. I have shown incidents where investing in a stock for its dividend yields worked and failed. My point? Let me paste again.

  • Of course, these are 2 examples where investing a stock for its dividends failed. My point? Simple. I am not saying such an investing would not work and I am pretty sure many could provide me with full data where investing a stock for its dividends are proven successful. However, all I am saying is the investor should be careful. There are many incidents where such an investing can fail! The sustainability of the company's earnings is just as important. The reasoning is simple, without sustained earnings for the company, how could the company afford to continue paying so much dividends?

Anyway, let me just pick one stock from those stocks you had chosen.

I choose PLUS Expressways.

Now here is a clip of one of the older report I have on Plus. It's dated 2005. It's that fair enough?


Most important, I have the actual traded stock price. PLUS then was traded at 3.08. Let's see how investing in a stock for its dividend yield fared since then.

Alright then?

Let's start ... investment of 10,000 shares at 3.08 on 25 November 2005.. Cost of investment 30800.

PLUS in 2005 paid its Interim Dividend on Sep 2005. So this is a missed dividend.

Dividends collected = 10 x 150 = 1500

Dividends collected = 10 x 85 = 850.

Total dividends collected = 1500 + 850 = 2350

Dividends collected = 10 x 145 = 1450.

Total dividends collected = 2350 + 1450 = 3800

Dividends collected = 10 x 160 = 1600

Total dividends collected = 3800 + 1600 = 5400

So we have total dividends collected = 5400. Cost of investment = 30800.

PLUS last traded 3.37. So shares now worth 33700 or a paper profit of 2900.

Which means that currently from an investment outlay of 30800, one is sitting on a profit of 5400 (I shall assume that the dividends received are not re-invested at all and do not generate any interest for simplicity sake) + 2900 = 8300.

And this works out to a CAGR of 6.15% over 4 years.

Which is a pretty decent investment, yes?

How?

Could I say that investing in a stock for its dividend yield did NOT work here? Could I?

:D

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3 comments:

  1. Raymond Lum7:08 PM

    Thanks for the elaborate illustration on Plus.

    It's good to have a clear investment objective. So, if your goal is dividend yield, then go for those quality stocks. DY of above 5% is very decent, the key point is identify companies with sustainable cashflow and consistent payout.

    But in the investment world, dividend alone won't lead to riches. It's the company's growth that provides multiplication in wealth. Nestle was only RM9 in 1999but is RM33 now. It is the increase in share price that will create more wealth compared to dividend and this is the result of GROWTH in sales and profits in Nestle over the years.

    So for a conservative investor, a decent dividend yield of 5% plus at least a stable growth of average 5% in earnings should deemed a very good long term investment.

    ReplyDelete
  2. Moolah8:20 PM

    Raymond,

    My point is simple.

    One can suggest investing based on a low PE. Many can show instances where such a strategy works but some could ALSO show instances where it had failed.

    Same again with dividend yield investing.

    There are instances where it could be extremely profitable but there are instances where it could fail.

    ReplyDelete
  3. JCK2:24 PM

    i invested in panasonic malaysia.
    Not bad divs.....

    ReplyDelete