When looking for stocks, just buy the one with highest dividends? More dividends better right? - Seedly
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Anonymous

Asked on 10 Mar 2019

When looking for stocks, just buy the one with highest dividends? More dividends better right?

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Richard Woon Tian Jun
Richard Woon Tian Jun
Level 7. Grand Master
Updated on 24 Mar 2019

Not necessarily, think most of the commentors have covered it already. Paying out higher dividends does not mean a stock is better, it may actually be trying to attract more investors to buy their stocks, or to give off a "our company is doing fine" facade, when in actuality they are not doing well at all. Take a look at Telcos Starhub and Singtel - their dividends are consistent and attractive, but they are making losses thus far. Instead, what they should be doing is not keeping up their high dividend paying policy, bite the humble pie and use this retained earnings to reinvest and reinvent themselves to become profitable in the face of stiff competition from traditional telcos and new emerging ones like Circles Life. They are running themselves into the ground paying out their dividends.

Best thing to do - choose the one that fits your investment needs. If you want income (dividends) then you should look for one with extremely strong financial health that can most likely keep up their dividend policy for many foreseeable years to come. If you are looking for capital gain. perhaps a growth stock like Bestworld will do you better.

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No, what you want is consistent growing dividends. There are cyclical companies that can give 25% dividends maybe for a year or two and then 0, and then stock price drops.

Invest in good companies instead of good dividends. Good companies will eventually give good dividends.

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W

17 May 2020

I totally agree
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Ernest Yeam Wee Leong
Ernest Yeam Wee Leong
Level 7. Grand Master
Answered on 24 Mar 2019

It can work both way.

high dividends could be due to it being undervalued.

high dividends could also mean this stock price is already priced at a level where earnings is expected to fall. hence the dividends could be lower the next time round.

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Isaac Chan
Isaac Chan, Business at NUS
Level 8. Wizard
Answered on 11 Mar 2019

I think dividend yield would be a more accurate way of looking at it! It is not just how much dividends you are getting but also how much dividends you are getting for the price you have paid for each share. Other than that, you probably gotta look at whether the dividends can be sustained also, like what the others mentioned.

Capital gains from selling the shares at a higher price can also be something you might wanna consider in your overall investing strategy.

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Terence Tan
Terence Tan, Finance at Singapore Management University
Level 5. Genius
Answered on 11 Mar 2019

I do not think that is true. After M1 and Starhub slash their dividends, investors have to take note that dividends are not a good indicator of whether a company is good to invest in a not.

Because it may not be sustainable.

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Yang Teng
Yang Teng
Top Contributor

Top Contributor (Aug)

Level 9. God of Wisdom
Answered on 11 Mar 2019

That is not true. When selecting a company to invest in, you have to make sure not only are they paying good dividends but also paying it sustainably. This means that they cannot be paying more than what they are earning (100% profit) or more than their operating cashflow. The figures can be easily found on their annual report. For reference, usually ideal dividend yield is ~5% (though there are exceptions).

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Yong Kah Hwee
Yong Kah Hwee
Level 8. Wizard
Answered on 11 Mar 2019

Stocks that pay high dividends may not neccessarily be able to sustain them. There are many other factors to consider other than just dividends. Better to invest in companies with good fundamentals.

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