Creating Your Portfolio of Dividend Yielding StocksAugust 21, 2017
“Albert Einstein once said that the power of compounding is the eighth wonder of the world”. While there are numerous methods to compound your wealth, one of the more popular ways to do so is through dividend investing. Dividends are distributions of company earnings to its shareholders and investors receiving those dividends will be able to relocate such funds to other dividend yielding equities, achieving the compounding effect.
In my personal opinion, investors building a dividend portfolio should consider the following 3 factors:
|Stable earnings||When investing in dividend yielding stocks, investors should focus on companies with long term consistent growth in both revenue and net profit. Even with low growth, these companies will be able to pay out dividends from their profit, thus reducing the possibility of declining or no dividends for investors.|
|Consistent Dividend Payout Policy||Each company usually has its specific dividend policy which is highlighted in its annual report. While such policies are subjected to possible changes, investors will still be able to understand how companies are managing their earnings. Companies with consistent dividend policies will give a certain level of assurance to ensure future consistent dividend payment to their shareholders.|
|Diversification||Investors must be prepared for times when one makes a wrong investment due to unforeseen circumstances. Therefore it is always wise not to put all your eggs into one basket. Diversification is best achieved when your portfolio of stocks is diversified across different business models and geographical locations.|
Across Asia, Singapore listed companies are ranked as one of the top in terms of dividend play. Apart from yield, our 1-tier tax system will also help to improve investors’ yield as compared to other countries (e.g. US Dividend Withholding Tax: 30%). Below is a short list of dividend companies or trusts listed on the Singapore Exchange. While the following are not a recommendation to buy or sell, I hope it serves as a good starting point for investors to understand the different industries and historical dividend yields that our local exchange has to offer.
*Dividend Yield are extracted from SGX Stockfacts based on 21 August 2017 closing (www.sgx.com)
Summarising the above, I believe it is possible to build a well-diversified portfolio that gives an average dividend yield of 5%. However, investors should take note that historical earnings and dividends are never an indication of the future. Buying a share is equivalent to owning a business; you should always do your due diligence on the businesses you are investing into.
Passive investors looking to accumulate dividend yielding assets over time can consider adopting the dollar-cost-averaging method whereby you allocate a fixed investment amount on a monthly basis. With a disciplined approach, one may be able to build up a portfolio while reducing the risk of purchasing any stock at a single high price.
If you wish to know more information about Share Builders Plan or any other stocks, you can speak to your designated Trading Representatives or a Dealer at a Phillip Investor Centre near you.
About the author
Mr Michael Tay
Mr. Michael Tay currently provides dealing services to over 17,000 trading accounts and is part of the POEMS Dealing, the core in-house dealing department of Phillip Securities Pte Ltd. Michael is a strong believer of value investing, focusing on companies with strong fundamentals and good dividend policy. Apart from his dealing role, he often provides training seminars on Fundamental Analysis topics to further enrich his clients’ financial knowledge. Michael holds a Bachelor Degree of Finance from the SIM University (UniSIM) and was awarded the CFA Singapore Silver Award in 2012.