At 30 years old, I had 6 years of investing under my belt.
But my returns was heading nowhere. One of the main reasons was that I was trying a lot of different things. So I told myself, its time not to mess around anymore and try one method that I feel goes best with my character. Then I doubled down on it.
I lean towards investing for dividends. And what a friend said about respecting value makes sense.
So I doubled down on value investing with a focus on finding dividend paying companies.
I been doing that since then, and regular readers would know where to check how I am doing.
Why Investing with a Tilt Towards Dividends?
Dividend investing has a lot of appeal, and I think the reason is that people likes to be validated that they are slowly getting a cash flow payout from their investment.
This has a lot of similarities to the Asian concept of owning land and leasing out to farmers to grow crops and living off it. It is a very passive form of income.
At this stage of investing, I wouldn’t compartmentalize the way that I invest to be called dividend investing. I prefer to call it active stock investing simply because I invest in stocks and I take an active approach.
However, the role of dividends plays a big role in my consideration:
- It is the cash flow return that I get for waiting for an undervalued stock value to be realized. One good example are the cash flooded company Cosco Shipping International in HKSE. They have been in that position for quite some time and you don’t know if value is going to be unlocked and when will that happen. Having a good payout and a supportive business allows you to stay in the stock
- It helps you to inspect if the business is more of a fraud or less of it. This is simply a measure of how much the management takes from the minority shareholders versus what they paid out
- It enables you to determine the valuation. When compare against the peers, it allows you to determine the stock’s relative valuation versus its peers
- It allows you to determine its posture between growth and maturity
Perhaps the main difference is that I use the dividend payout as an indicator, as well as a cash flow remuneration while you are attracted due to its cash flow payout.
There are Dangers if you are Less Sophisticated on Dividend Investing
There can be a particular danger if you are enamored with the dividend component. If I need $20,000/yr, I could just put it in Asian Pay Television Trust (APTT) and I would only need $200,000 to achieve that.
There are some deeper knowledge that, if you didn’t know that you need these knowledge, it could be dangerous. And that danger can very well be an impairment of 20-30% of your capital. This will be difficult to gain back when the cash flow do not support the dividend payout. It will take many many (and I say many) years to recover.
On $200,000 that is $60,000 impairment.
The price chart above shows the 3 year price change of APTT. Observe that at IPO, in 2015, or as recently, if you have invested at these period, your initial dividend yield will be damn appealing. They would fulfill the income you need.
However, overtime, the share price goes on a tailspin. While the prevailing dividend yield is always attractive (and even after this plunge it is attractive as well!). You would have lost a lot of capital while you gain dividends.
Is this how dividend investing suppose to be? I would say dividend investing can be volatile, but if you are more sophisticated, you can avoid some of these companies. If not, a more sophisticated dividend investor would bite the bullet and escape this.
Look through my past transaction logs and you would see I was invested (not just APTT but in its original form MIIF). I am also human. But increasing our competency can help correct some of these mistakes.
These are not scary case studies that only occur to a small subset of people. As I have written about this in a previous post, APTT and Rickmers case study is common, attractive and can turn out to be rather unfortunate.
It is not all doom and gloom.
Sophistication allows you to spot companies that pay out a decent dividend yield, yet has the ability to grow their dividends.
What you see above is the historical price chart of Chip Eng Seng, a construction company, which eventually went into property development. It might not be the ideal dividend stock but you can see yourself prospecting a stock like this and get invested in 2005 based on a 6.5% dividend yield per year. Over time, its earnings expand and they pay out more dividends. The annual dividend yield on your original cost became 12%, then 15% then 34% then 52%!
Who says if you go into dividend investing, you forgo growth?
If I were to summarize, here is the high level solution:
Focus on having a good dividend investing system.
By that it means:
- having good processes to prospect stocks, be able to tell whether a stock is a good dividend stock, a mediocre low growth but sustainable payout one and plain bad, unsuitable ones
- continue to learn and polish your dividend investing craft
- having a good system when you should buy, how much to buy, when you should hold or sell, when you should add on (basically portfolio management and execution)
And this brings us to Dividend Machines.
Dividend Machines Reopens
If you wish to learn from me, you can take a look at my resources section.
It contains curated resources on:
- Building a good wealth foundation
- Learning about REITs
- Active Stock Investing
- Financial Independence and Retirement
These are usually not very comprehensive since I don’t kill myself to create a bunch of modules for you guys.
If you wish to learn about dividend investing, there are a few training centers that offer affordable classes.
One of them is offered by .
My friends Rusmin and Victor started this course some time ago, focusing on providing the necessary resources for investors who wants to invest in dividend stocks to be well equipped to deal with that.
The course is conducted in an online manner.
There are 5 modules that brings you from a raw investor to one who knows how to systematically prospect stocks for dividends:
- The first module gives you an idea the appeal of dividends and why you should invest this way
- The second module is important. It lays the framework that this way of investing is not unlike any other investing in that it requires you to have a good wealth foundation in order for you to succeed (and many just jump straight into investing oblivious that these aspect are important)
- The third module goes into the nuances of investing in dividend stocks, according to Rusmin and Victor. Here they lays out their idea how to select the stocks, what to watch out for, why do they prefer some metrics over the others
- The fourth module goes into the Mumbo Jumbo of REITs, which happens to be a popular subject.
- The final module ties everything together and shares with you how to manage the stocks from a portfolio perspective. You will learn about how much dividend stocks you should have. You will learn about how heavy you should concentrate or whether you should do that at all. And whether you should do margin financing on your dividend stocks.
The curriculum is online, which means you do not have to rush to classes when your boss wants you to work longer. Or when your children suddenly fall sick.
It is more flexible for the modern employee.
Questions & Answers and Discussions
The best way to learn is to clear your doubts.
As you critically think what is right and what is wrong, you have more doubts.
As you get each of these doubts addressed, you will gain confidence in how you an go about executing a plan to create a dividend portfolio.
In the platform, you can access to Rusmin and team who will answer your query. Here are some examples:
You can also grow by paying attention to what your fellow trainees queries and the answers to them. Sometimes you do not know what you need to know. So when your fellow trainees raise a question and you come across it, you become conscious about it.
Have Unlimited All Access Workshop
I realize from my friends that people still prefer the human interaction.
While technology can provide such an advantage to make learning interactive and flexible, people still prefer to interact in a face to face manner.
will organize all access workshops. In these workshops, you can hear the trainers present their recap on course materials, what you should focus on, and some common mistakes.
You can also get the chance to talk with the trainers and revisit the curriculum.
It is a full day event where you can interact with trainers, who will revisit the action plan. The trainers will highlight certain more important nuances of the action plan that you might missed out (if someone keeps repeating something, it might sounds lame, but its probably important enough to keep repeating!). You can also ask them what you are unclear about.
In 2018, Rusmin and Victor hosted 8 such sessions last year and if you are a Paid Member, you have access to these workshops.
However, these workshops is on a first come first serve basis so when they are available do register them early.
Dividend Machines is Now Open for a Limited Time!
You can sign up for Dividend Machines
As with past Dividend Machines, you can only sign up within a limited duration. On last count you should have 20 days more, as it will close on 10th Mar, 11:59 PM.
During this time frame, you can enjoy the course fee of US$347 (SG$469)
Given that you pay this one time fee and have access to content that will be updated annually, and that have access to trainers virtually and live, this is a very good deal.
And if after 30 days you are not satisfied with how the course turned out, there is an iron clad Money Back Guarantee. This gives you a piece of mind to sign up.
Guys some of the links above are affiliated links. When you click on the links, I earn a commission at no additional cost to you. I believe you will gain value out of Dividend Machines if that is what you are leaning towards in terms of wealth building at a good price range. In any case, I am part of the Q&A group in Dividend Machines as well. Let me know the feedback for the course so that I can improve the recommendations.