Are high dividend stocks in Singapore considered a good investment? Of course, it is!
Whenever you buy shares, you are buying to be a part owner of a company. The more shares you buy, your ownership of the company will increase. The dividend refers to the payout of income that you get because of that part ownership. When the company earns and grows in value, your shares in the company will also grow.
For instance, a company is selling each share for S$10. If you have S$1,000, you can own up to 100 shares of the company. If after a year the value of each share becomes S$15, your 100 shares are now valued at S$1,500. Your initial investment just earned S$500. Does that mean the dividend that will be given to you will cost S$500? Not exactly.
It will depend on the company that you invested in. Some companies have different payout ratios of a company’s earnings. The dividends that you will receive usually comes in the form of a cash payment, shares of additional stocks or even other properties or assets of the company.
If a company is known to offer high dividend yields, it means the income that you can expect a high income from your investment. So if you will invest in shares, make sure to look for those that boast of high yields.
But before you go for the company that offers the highest dividend yields, you need to consider a couple of rules first. It is important to understand the Singapore market and your personal investment goals before you decide on what stock investment you will pursue.
What is the state of the high dividend stocks in Singapore?
High dividend stocks in Singapore will always be attractive. At least, it will be in 2017.
According to an article published on StraitsTimes.com, Singapore is still one of the “highest yielding markets in Asia.” Although it is small and dependent on external factors, the local market will continue to be strong.
It will be challenging, specifically because of the change in the US administration, but the Singapore market is expected to survive.
The article revealed that the market had slowed down – but most of these are concentrated on huge telco companies and banks. These are the companies that belong to the good sectors. Investors should not be rattled because these are the companies that are more than able to bounce back. That being said, investors in Singapore can still expect to find companies to invest in that can provide a “strong cash flow.”
Investing in high yield dividend stocks will still earn investors around 4%. The major sectors that are expected to stay strong in the coming months are those involved in consumer goods, banking, transport, and property development sectors.
5 rules to consider when choosing high dividend stocks in Singapore
Without a doubt, dividend stocks are looking good. The next question is, how does one analyse the various high dividend stocks in Singapore?
While there is no one formula when it comes to investing in stocks, there are certain rules that you can follow. Here are 5 of them.
Rule 1: Quality of Shares
The first rule is to look for companies that have a proven track record of quality stocks. High-quality stocks refer to companies that have shown stability, profitability, and growth in the past 10 to 25 years. The longer, the better. The company should be delivering dividend payments consistently and without any reduction. This is a sign of a stable company that you can invest in and expect great dividend yields.
Rule 2: Highest Dividend Yields
The second rule that you can follow involves ranking the companies based on the dividend yields. For instance, SGX.com revealed that the top 5 companies that gained the most in 2016 are “SATS, Venture Corp, Golden Agri-Resources, Wilmar International and Singapore Tech Engineering.” The gains of these companies averaged 24.9%. These are the companies that will help you earn the most profit in the current market.
Rule 3: Safe Investment = Low Payout Ratio
If you are after safety, then you have to look for high dividend stocks in Singapore that have a low payout ratio. A payout ratio is the percentage of the earnings that are paid out to the dividends. If the payout ratio is high, that means all the income goes to the dividends.
When the company goes through a downturn, you can expect that there will be a reduction in dividend earnings. A company with a low payout ratio means only a portion of the profit goes to dividends. A downturn will not necessarily lead to a reduction in dividend payouts. That lowers the risk of your investment.
Rule 4: Solid Growth
There is a huge difference in investing in a company that gives a high dividend income and one that provides a high dividend growth.
If your investment strategy is to have a solid growth in earnings, then you want to focus more on the dividend growth of the company and not focus on the current yields. This is actually how Warren Buffet invests. This is probably a good strategy for long-term investments.
Rule 5: Resilience
This refers to companies that people usually invest in when the market prompts them to panic. These are the companies that have a stable price for their shares. That means investors can easily hold onto for the long-term. You want to concentrate on the volatility of a company. If market experts are predicting a turbulent stock market, you may want to invest your money where it can survive.
If you want to invest in high dividend stocks in Singapore, these are the rules that you may want to look into. Choosing the perfect rule to follow will depend on your investment goals. For instance, let us assume that you are after security when it comes to investing. That means you need to look into either Rule 3 or Rule 5.
If you choose rule three, you need to look beyond the dividend income and focus on the payout ratio. Top Yields revealed that Hutchison Port Holdings Trust has a dividend yield of 9.7 but a payout ratio of 150. On the other hand, Singapore Telecommunications Limited (Singtel), on the contrary, has a dividend yield of 4.56 but a payout ratio of 73. If you want safety, then you are better off going for Singtel.
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