High dividend yield vs dividend growth

I recently read a book about Income Investing (Income Investing with Bonds, Stocks and Money Markets by Jason Brady- click here).

There is one section about the difference between high dividend yield vs dividend growth. Jason highlighted that given the choice, he would choose the latter: consistent dividend growth. Of course both may not necessarily be exclusive eg. you can have a stock that has a high dividend yield and consistent growing dividend.

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Dividend Income Versus Dividend Growth (read here)

Or in another situation, a high dividend yield stock (mature, non growing company) vs a smaller yield stock but whose dividend is growing (young growing company) – the end results after years later could be the same.

I have been surfing the web on local stocks. True, the allure of high dividend yield stocks is high. And it is not uncommon to gravitate towards REITS (click here). There are lists of high dividend paying local stocks online. However, I have yet to find one (local stock) that has high yield and consistent dividend growth (if you have one in mind, do let me know :P).

BTW, I tend to treat this blog as my personal journal… for myself to talk to myself hahaha, not here to prove a point.

However, before I continue further, I like to clarify that I am still skimping the surface when it comes to REITs, Business Trust, Utility Stocks, Telcos etc … stocks that have high dividend yields. I reckon there are others whom are more focused on dividend investing and more informed (so please bear with me :p).

While looking at these stocks, the data provided is often the latest yield rates (it is easy to find these online). However, what I am more interested is the past performance of these companies in growing their dividend. Ah yes, to combine both yield with growth.

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There are several issues with this approach – firstly, not all stocks with high dividend yield have long historical data. For instance, I would have excluded IREITs (listed on SGX in Aug 2014), Keppel DC REIT (listed on SGX on Dec 2014) etc…

Secondly, like I mentioned before, I did not conscientiously track the dividend payouts of Singapore listed stocks, so my knowledge in this sector is a bit lacking ….(as much as I surfed online looking for high dividend yield + growing dividend local stocks – the results have been dismal).

Thirdly, there are a lot of factors to consider when picking stocks. The fundamentals and narrative of the company and its business are all very important (not just the dividend yield).

How to Pick a REIT for Sustainable Dividends (read here)

Nevertheless, I will just limit my study to what I am currently looking at. Now let’s start with some high dividend yield REITs & Business Trusts.

Let’s look at AIMS AMP Capital Industrial REIT (8.5%), FIRST REITS (6.8%), Hutchison Port Holdings Trust (9.8%) and Cambridge Industrial Trust (8.3%).

So let us take these as examples. See charts below (data from Morningstar).

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Firstly, the thing I realized, is the lack of long historical data. The one with the longest dividend track record is Cambridge Industrial Trust and even for that stock, its dividend history is only till 2009.

I am curious as to how these stocks’ dividend performance are like in times of crisis eg, 2008-2009 GFC or even the recent 2011 market fall due to the European sovereign debt crisis.

I can see a general upward trend for AIMS AMP Capital Industrial REIT, but I would need a longer time frame to have more confident in the upward trend. For the rest, I can’t really see an upward trend…(at best, Cambridge Industrial Trust has a flatline dividend payout).

The next thing is when I search online for local stocks with consistent dividend growth, I end up with another four stocks. See article below.

1) These are the four shares with consistent dividend growth (read here)

2) Rock-Solid Dividend Shares to Start 2015 With (read here)

The first article is slightly dated – the original source of this article is a February 26, 2014 Motley Fools article. Of the 4 stocks mentioned in the article (CapitaMalls Asia, Super Group, Vicom & Raffles Medical Group), CapitaMalls Asia has been privatised by CapitaLand in 2014.

Out of the remaining 3 stocks, I am currently invested in 2 of them (Super Group & Vicom). Personally, I do not consider them (Super Group & Vicom) as dividend stocks. Vicom, Raffles Medical and Super Group all have great balance sheets.. however in terms of growth, Vicom’s growth is anemic while Super Group’s past quarters results are bad.

The second article from Motley Fools is dated January 5, 2015. Two stocks are highlighted: Raffles Medical Group Ltd and Straco Corporation Ltd.

Let’s look at the dividend history of these 4 stocks listed on SGX (Vicom, Raffles Medical, Super Group and Straco). See charts below (data from Morningstar).

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Base on the chart above, we can see a consistent upward trend in dividend payout for Vicom. Raffles Medical and Straco have upward trends too (but not as consistent). The dividend performance of Super Group has fallen off the cliff.

 

In an ideal world, I would like to have consistently increasing dividend stocks (and high dividend to start with)…. however, it is never ever that simple.

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To me, the consistency of dividend payout is important (better if it is growing), more important than high dividend yield in fact. Of course, all of us like high dividend yield stocks, and it is not uncommon to see portfolios full of high dividend yield stocks… but I think it is equally important to consider the downside risks eg. how stable and sustainable are these dividend payouts? Well, this is more critical for the passive investor like me. I don’t usually dart in and out of stocks – trust me, I would be taken totally by surprise if there is a sudden dividend reduction (as I was with Super Group)… now if only I have a crystal ball….

At one time, Keppel Corps,  Sembcorp Marine & Rickmers Maritime Trust were considered high dividend yield stocks – that was until the O&G sector tanked. While recently, it is questionable if Nera Telecommunications Ltd can sustain its dividend yield.

Here’re What Investors Need to Know About Keppel Corporation Limited’s Dividend and its Sete Brasil Headache  (read here)

Sembcorp Marine Ltd’s Latest Earnings: The Suffering Continues (read here)

Rickmers Maritime Trust Stops Dividend Payment (read here)

Can This Stock With An Attractive 6.5% Dividend Yield Sustain Its Dividends? (read here)

Well, more for me to dig into….

 

If only I have a crystal ball or a time machine…Shall leave you with this little song.

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About apenquotes

Born in 1976. Married with 2 kids (a boy and a girl). A typical Singaporean living in a 4 room flat.
This entry was posted in Dividend & Yield. Bookmark the permalink.

9 Responses to High dividend yield vs dividend growth

  1. Don’t forget to look at dividend yield and dividend payout ratio as a pair. Looking just at dividend yield to determine its high dividend is not so right. Not that many investment bloggers mentioned it.

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    • I agree. Besides looking at the dividend payout ratio, we also need to analyse the sector which the company operates in. E.g. SPH’s earnings have been dropping over many quarters due to the sunset industry of traditional newspapers. So, even though the yield is juicy, it might not sustainable over the long-term. So, we must also analyse the long-term fundamentals of a company and see if they can continue to grow earnings. Bcos if earnings cannot grow, dividends will not too.

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    • apenquotes says:

      Thanks. I thought about dividend payout ratio.. just that I reckon this differs from industry to industry. REITS had to pay out min 90% of their profit as dividend.

      However for other companies they may need to have high level of cash due to the nature of their business. For example during the recent Vicom and Kingsmen Creative AGM, shareholders questioned why the cash level is so high and why not issue out as dividend… KC management stated that they need the cash for their tendering processes …

      On the other hand, issuing too much as dividend may have issues later…during bad times, the low cash level may result in company needing to take on debt or issue right issues or private placements.

      For me, further study needed for dividend payout in relation to their peers..In the meantime, I just hope they issue us what they are comfortable with (have enough left for their operations) but with consistent growth in dividend…

      I found this article talking about dividend payout ratio: It is a sign of good management and financial health if the dividend payout ratios are stable over time or trending upward at a reasonable clip.

      And this article.

      Thanks again.

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  2. John says:

    Even REITs, also go for dividend growth. Because the stock price will follow the dividend yield, double gain.

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    • apenquotes says:

      True. But haven’t been studying much into REITS. REITs for me is more complex than typical companies.

      So went for the short cut method of searching online for local stocks with consistent growth in dividend yield (actually was hoping to find some with high yield or perhaps some REITs or Business Trusts :p).

      Well perhaps in the future will slowly look through the local REITS. Some of them are relatively new .. so the lack of historical data will already render them out of the study. It is still questionable how they will perform in a bad market and economy.

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