FACTS:
1) annualised return of djia for past century is around 10%
2) that of straits times index for past many decades is ard 9%.
3) of these annualised returns, approximately half comes from dividends n the other half from price appreciation.
IMPLICATION:
Buying a stock which pays dividend every yr for as long as it exists is key.
a) from above point 3, we know that we get half the deal already if we do so.
b) both points in 3) are RELATED. We know most companies raise dividends over time n this invariably causes price appreciation
THE QUESTION OF WHEN TO BUY/SELL:
We need capital protection which is cornerstone of investments so we do these:
1 a) undervalued stocks - margin of safety concept to determine approximate entry price and exit price when this MOS is lost.
b) growth stock - mostly PB greater than 1. Go only for bluest of blue chips so that its moat and dividend protects it. Determine entry price based on yield n exit price when yield diminishes such that it is getting riskier to hold on or when there is a similar blue chip which has a higher yield. We are assuming it has a lasting strong moat.
2) use dividends to add more or divest elsewhere while holding on to it.
3) keep repeating 1 & 2.
1) annualised return of djia for past century is around 10%
2) that of straits times index for past many decades is ard 9%.
3) of these annualised returns, approximately half comes from dividends n the other half from price appreciation.
IMPLICATION:
Buying a stock which pays dividend every yr for as long as it exists is key.
a) from above point 3, we know that we get half the deal already if we do so.
b) both points in 3) are RELATED. We know most companies raise dividends over time n this invariably causes price appreciation
THE QUESTION OF WHEN TO BUY/SELL:
We need capital protection which is cornerstone of investments so we do these:
1 a) undervalued stocks - margin of safety concept to determine approximate entry price and exit price when this MOS is lost.
b) growth stock - mostly PB greater than 1. Go only for bluest of blue chips so that its moat and dividend protects it. Determine entry price based on yield n exit price when yield diminishes such that it is getting riskier to hold on or when there is a similar blue chip which has a higher yield. We are assuming it has a lasting strong moat.
2) use dividends to add more or divest elsewhere while holding on to it.
3) keep repeating 1 & 2.
Hi Paul,
ReplyDeleteThank you for sharing. Great article.
May I know why there is a sudden fall of 7% for Noel Gifts?
Cheers
SG L
Hi SG L
Deletelikely some small seller involved. I wldnt read too much into this. NGI fubdamentals still intact. i would expect 2-3c div this yr.
Hi Paul,
DeleteThanks a lot for the reply. ;)
I also think Noel is a great stock.
Cheers
SG L
Hi Paul, very succinct reminder for value investors. What yield rate to you is minimum acceptable MOS, below which you sell?
ReplyDeleteHi trademarksg
Deletethis depends on the company concerned.
as an eg sgx pays ave 4% yield over past decade. so one might consider selling if yield drops to say 3.5% n buy if yield exceeds 4.5%..or buy at ave yield n simply stay vested as we know sgx pays increasing div over time.
the exact figure or strategy is very subjective.
Paul : Can't agree more with you... Great take on the importance of dividend in stock investment...
ReplyDeleteHi Richard,
DeleteThanks for ur support.
paul