You may not know what is a dividend if you are totally new in stock investing. When you start value investing in the world of stocks and shares, one particular word will pop up again and again. This word is of course dividend. The dividend is the profit that the share of stock brings. When companies pay out dividends you will receive some money and the opportunity to either take it or reinvest it into the company.
Corporations have changed their view of dividends over the past few decades. Originally corporations worked very hard to pay out dividends to their stock holders. They wanted to keep money flowing and of course keep the stock holders happy. However, in more recent times corporations have been changing their view. Many of the top corporations in the world got that way by not paying dividends and re-investing in the company.
To Pay Dividends Or Not
As a company grows and becomes more profitable, it can do one of two things. It can increase its number of shares and bring in more investors, or it can start stock buy back and reducing the company debt. Corporations that take the second option make their individual share prices soar in value, provided the company has been managed well. When the individual share price increases, everyone benefits.
A great example of this practice is the Microsoft Corporation. The company did not pay out on a single dividend until it was worth over 350 billion dollars. It kept reinvesting its profit back into the company, making all who were shareholders very wealthy. Other companies that went this route to some extend were Wal-mart and the Coca-Cola Corporation.
Examples of Dividend Stocks In Singapore
In Singapore context, Singapore investors including myself love REITS as they can give out generally 5-8% annual dividend yields. Two good examples last year are Cache Logistic Trust and Soilbuild Business Space REIT which recorded over 8% annual dividend yield in 2017.
From value investing perspective, the consideration to acquire a value stock does not generally depend on past dividend yields of a stock. Dividend stocks giving out high dividend returns do not imply that they are actually good stocks. There could be scenarios where there was one time gain and the company decided to pay out more profits to the stock holders in order to impress them.
Do your own due diligence to sniff out what are the best dividend yield stocks in Singapore. Or tap to our value investing community’s research.
When value investing, how one looks at dividends can be quite important. Before, many looked at how often the corporation paid out for its shareholders. However, it can also be a good sign when corporations buy back stocks and hold off on paying dividends. The corporations will grow as a whole making the stock shares more valuable.
When value investing, both methods can be profitable if your willing to wait for the long term. It also depending on whether your intention is a dividend play type of strategy. Getting rich quick doesn’t happen unless you’re extremely lucky. Keep you money in and keep re-investing to get the compounding effect. In the long term, you will come out a winner.