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Anonymous

18 Apr 2019

โˆ™

General Investing

Are high dividend stocks a good investment ?

6

Discussion (6)

What are your thoughts?

Isaac Chan

Isaac Chan

09 Apr 2019

Level 11ยทBusiness at NUS

On top of what the others have mentioned, I can introduce 2 metrics that might be helpful, which is Dividend Payout Ratio and dividends as a percentage of free cashflow.

Dividend Payout Ratio

Dividend payout ratio is simply the percentage of net profits that are being paid out to shareholders. To find this simply take dividends paid out divided by net profit as shown. The lower the figure, the better, since this means that the company isn't taking out too much of its net profits for dividend payments, and the dividends can sustain.

Dividends as Percentage of Free Cashflow

FCF measures cashflow that is availible to lenders and shareholders after the cash needs of the business have all been settled. This is a powerful measure since it looks at what kind of cash remains for non-business operating activities.

The formula shows how to get FCF. To get the percentage yield, just take the dividends divided by the FCF. Again, the lower the percentage the better.

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Billy Ko

Billy Ko

06 Apr 2019

Level 11ยทFinancial Analyst at REPE Firm

A high dividend yielding stock might look enticing but one has to dive in deeper to analyse the financials of the company. Is the dividend payout taking up a large percentage of their revenue / profits, are they generating positive cash flow. What are their strategies moving forward. Rickermers Maritime listed on SGX is one good example of a high dividend stock that went from Hero to Zero.

At a price of USD0.26, it paid out USD0.024 worth of dividends consistently for 4 years. Alas, their cash position simply couldn't sustain the payouts, orderbooks were blank and they had to resort to filing for bankruptcy, with the company eventually winding up. Thus it is important to do one's due diligence in purchasing high dividend yielding stocks.

If you can see the high dividend yield, other investors can too. But why aren't they jumping onto the bandwagon to push up the price? There comes your investigative skills to uncover this.

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Not necessarily. Just look at the Telco industry, they are getting beaten down on all fronts - stock...

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