I finished reading the dividend book...managed to complete reading it in a day. I never knew I could squeeze so much time if I had to, though it is quite tiring. These are the few things I thought it's important:
1. Instead of calculating % yield (formula: dividend for whole yr/current market price of stock), we can calculate the % yield relative to cost price (formula: dividend for whole yr/price at which you buy). This means that after you buy the stock, the share price will not change anymore.
2. It is possible for the dividend paid out to be equal to the price of the stock after a period of time. That means that if you buy and hold while getting dividends invested throughout the years, it's possible to own a stock for free. I think it's almost like buying a property - rental collected will pay for the mortgage until it is fully paid for. In which case, the property becomes 'free', yet it can still generate income for you. Robert kiyo's favourite.
3. Be careful about buying stocks just for its high yield. High yield happens could happen because there is some trouble, so the share price drops, bringing up the yield. Yield could also be high because the dividend paid out is very high, perhaps due to divestment of business or some other one off event. If it's the first reason (share price drops), then we have to analysis whether the fundamentals is still sound. A good example would be the subprime issue, where a massive selldown cause a lot of dividend stock to reach sky high yield (10% to 12%, I heard for some REITS). This is where a cool head should analyse to see if the selldown of the stock is due to external or internal problems relating to the stock itself. If it's the second reason (high dividend payout), then usually the price will rise to accomodate it...if the price didn't go up despite the announcement of high dividend, ask yourself why. In summary, always find out why it has high yield before jumping in. It just shouldn't be the only criteria to invest.
4. The book said that ideally, before investing in divided yielding stock, we should check a few things.
a. payout ratio (formula: dividend payout/total earnings) - check payout % against industry's average to see if it's on the high or low side. This is to get some clue as to how sustainable the dividend is. If it didn't give any clue on that, at least you'll know whether it's on the high or low side of the industry.
b. cash flow - ideally should be 3 times the dividend paid out per annum. I do not know why 3 and not 2.5 or 4. Perhaps the rationale is to ensure the sustainability of the dividend again. I heard of companies with liquidity problems but they still borrow to give dividend. Or maybe high earnings, low cashflow, but still give dividend...
c. P/E ratio. Can't really remember what is said for this as my mind auto shut down when I see PE. I think the point is to link the yield to the earnings. You know, high yield could be low price, but if P/E is very low, might mean a bargain. MIGHT.
5. A few sectors give good dividends. Financials. REITS. Utilities. These are the 3 that I can remember. But each one have different characteristics...have to examine more in detail.
6. We can use dividend yield as a gauge to whether the stock is over or under valued. But firstly, we need to find out the historical high and low yields. If the yield currently is high (meaning price is low), then value hunters will step in to support the stock. If the yield is low (i.e. price too high), then it might be a overvalued, consider selling?
7. Dividend yielding stock give two kinds of returns to investors: dividend and capital appreciation. In bad times, where capital appreciation is put on hold (a more likely case is capital depreciation!), the only way to earn from the market is from dividend. Price might drop but it will be supported at some point because the yield becomes higher and higher while the price drops. Growth stock without dividend might not be so bear-proof. So even in bear market, total returns of a stock might be 1-2%, also better then nothing.
8. To find out how long it takes for x% returns to double your money, use the rule of 72. Take 72 divide by x - that will give the number of years to double your money (assuming reinvested and compounded annually). To find out how long to triple your money, use the rule of 115. Take 115 and divide by x.
Magic rate is 15%...because at 15%, 5 years is all it takes to double your money. 7.7 years to triple your money. No joke.
That's all I can remember.
Today I bought Security analysis from MPH, because when I tried to order from Berkshire business books, they told me it's out of print (and have to ask the publisher to print it!). That will take 1.5 months and above. It's not acceptable for me, so I grabbed it from MPH. It's not an easy read, from what I see.
Going to read "The little book of Common Sense Investing" by John C. Bogle. Know who is he? He's the founder of Vanguard Group, a fund house in US. Can't remember whether I've read this book...good to re-read this again even if I did. Perspective is definitely different for me this time round.
Source: Bully The BearBy: La Papillion
I finished reading the dividend book...managed to complete reading it in a day. I never knew I could squeeze so much time if I had to, though it is quite tiring. These are the few things I thought it's important:
1. Instead of calculating % yield (formula: dividend for whole yr/current market price of stock), we can calculate the % yield relative to cost price (formula: dividend for whole yr/price at which you buy). This means that after you buy the stock, the share price will not change anymore.
2. It is possible for the dividend paid out to be equal to the price of the stock after a period of time. That means that if you buy and hold while getting dividends invested throughout the years, it's possible to own a stock for free. I think it's almost like buying a property - rental collected will pay for the mortgage until it is fully paid for. In which case, the property becomes 'free', yet it can still generate income for you. Robert kiyo's favourite.
3. Be careful about buying stocks just for its high yield. High yield happens could happen because there is some trouble, so the share price drops, bringing up the yield. Yield could also be high because the dividend paid out is very high, perhaps due to divestment of business or some other one off event. If it's the first reason (share price drops), then we have to analysis whether the fundamentals is still sound. A good example would be the subprime issue, where a massive selldown cause a lot of dividend stock to reach sky high yield (10% to 12%, I heard for some REITS). This is where a cool head should analyse to see if the selldown of the stock is due to external or internal problems relating to the stock itself. If it's the second reason (high dividend payout), then usually the price will rise to accomodate it...if the price didn't go up despite the announcement of high dividend, ask yourself why. In summary, always find out why it has high yield before jumping in. It just shouldn't be the only criteria to invest.
4. The book said that ideally, before investing in divided yielding stock, we should check a few things.
a. payout ratio (formula: dividend payout/total earnings) - check payout % against industry's average to see if it's on the high or low side. This is to get some clue as to how sustainable the dividend is. If it didn't give any clue on that, at least you'll know whether it's on the high or low side of the industry.
b. cash flow - ideally should be 3 times the dividend paid out per annum. I do not know why 3 and not 2.5 or 4. Perhaps the rationale is to ensure the sustainability of the dividend again. I heard of companies with liquidity problems but they still borrow to give dividend. Or maybe high earnings, low cashflow, but still give dividend...
c. P/E ratio. Can't really remember what is said for this as my mind auto shut down when I see PE. I think the point is to link the yield to the earnings. You know, high yield could be low price, but if P/E is very low, might mean a bargain. MIGHT.
5. A few sectors give good dividends. Financials. REITS. Utilities. These are the 3 that I can remember. But each one have different characteristics...have to examine more in detail.
6. We can use dividend yield as a gauge to whether the stock is over or under valued. But firstly, we need to find out the historical high and low yields. If the yield currently is high (meaning price is low), then value hunters will step in to support the stock. If the yield is low (i.e. price too high), then it might be a overvalued, consider selling?
7. Dividend yielding stock give two kinds of returns to investors: dividend and capital appreciation. In bad times, where capital appreciation is put on hold (a more likely case is capital depreciation!), the only way to earn from the market is from dividend. Price might drop but it will be supported at some point because the yield becomes higher and higher while the price drops. Growth stock without dividend might not be so bear-proof. So even in bear market, total returns of a stock might be 1-2%, also better then nothing.
8. To find out how long it takes for x% returns to double your money, use the rule of 72. Take 72 divide by x - that will give the number of years to double your money (assuming reinvested and compounded annually). To find out how long to triple your money, use the rule of 115. Take 115 and divide by x.
Magic rate is 15%...because at 15%, 5 years is all it takes to double your money. 7.7 years to triple your money. No joke.
That's all I can remember.
Today I bought Security analysis from MPH, because when I tried to order from Berkshire business books, they told me it's out of print (and have to ask the publisher to print it!). That will take 1.5 months and above. It's not acceptable for me, so I grabbed it from MPH. It's not an easy read, from what I see.
Going to read "The little book of Common Sense Investing" by John C. Bogle. Know who is he? He's the founder of Vanguard Group, a fund house in US. Can't remember whether I've read this book...good to re-read this again even if I did. Perspective is definitely different for me this time round.
Source: Bully The Bear
I finished reading the dividend book...managed to complete reading it in a day. I never knew I could squeeze so much time if I had to, though it is quite tiring. These are the few things I thought it's important:
1. Instead of calculating % yield (formula: dividend for whole yr/current market price of stock), we can calculate the % yield relative to cost price (formula: dividend for whole yr/price at which you buy). This means that after you buy the stock, the share price will not change anymore.
2. It is possible for the dividend paid out to be equal to the price of the stock after a period of time. That means that if you buy and hold while getting dividends invested throughout the years, it's possible to own a stock for free. I think it's almost like buying a property - rental collected will pay for the mortgage until it is fully paid for. In which case, the property becomes 'free', yet it can still generate income for you. Robert kiyo's favourite.
3. Be careful about buying stocks just for its high yield. High yield happens could happen because there is some trouble, so the share price drops, bringing up the yield. Yield could also be high because the dividend paid out is very high, perhaps due to divestment of business or some other one off event. If it's the first reason (share price drops), then we have to analysis whether the fundamentals is still sound. A good example would be the subprime issue, where a massive selldown cause a lot of dividend stock to reach sky high yield (10% to 12%, I heard for some REITS). This is where a cool head should analyse to see if the selldown of the stock is due to external or internal problems relating to the stock itself. If it's the second reason (high dividend payout), then usually the price will rise to accomodate it...if the price didn't go up despite the announcement of high dividend, ask yourself why. In summary, always find out why it has high yield before jumping in. It just shouldn't be the only criteria to invest.
4. The book said that ideally, before investing in divided yielding stock, we should check a few things.
a. payout ratio (formula: dividend payout/total earnings) - check payout % against industry's average to see if it's on the high or low side. This is to get some clue as to how sustainable the dividend is. If it didn't give any clue on that, at least you'll know whether it's on the high or low side of the industry.
b. cash flow - ideally should be 3 times the dividend paid out per annum. I do not know why 3 and not 2.5 or 4. Perhaps the rationale is to ensure the sustainability of the dividend again. I heard of companies with liquidity problems but they still borrow to give dividend. Or maybe high earnings, low cashflow, but still give dividend...
c. P/E ratio. Can't really remember what is said for this as my mind auto shut down when I see PE. I think the point is to link the yield to the earnings. You know, high yield could be low price, but if P/E is very low, might mean a bargain. MIGHT.
5. A few sectors give good dividends. Financials. REITS. Utilities. These are the 3 that I can remember. But each one have different characteristics...have to examine more in detail.
6. We can use dividend yield as a gauge to whether the stock is over or under valued. But firstly, we need to find out the historical high and low yields. If the yield currently is high (meaning price is low), then value hunters will step in to support the stock. If the yield is low (i.e. price too high), then it might be a overvalued, consider selling?
7. Dividend yielding stock give two kinds of returns to investors: dividend and capital appreciation. In bad times, where capital appreciation is put on hold (a more likely case is capital depreciation!), the only way to earn from the market is from dividend. Price might drop but it will be supported at some point because the yield becomes higher and higher while the price drops. Growth stock without dividend might not be so bear-proof. So even in bear market, total returns of a stock might be 1-2%, also better then nothing.
8. To find out how long it takes for x% returns to double your money, use the rule of 72. Take 72 divide by x - that will give the number of years to double your money (assuming reinvested and compounded annually). To find out how long to triple your money, use the rule of 115. Take 115 and divide by x.
Magic rate is 15%...because at 15%, 5 years is all it takes to double your money. 7.7 years to triple your money. No joke.
That's all I can remember.
Today I bought Security analysis from MPH, because when I tried to order from Berkshire business books, they told me it's out of print (and have to ask the publisher to print it!). That will take 1.5 months and above. It's not acceptable for me, so I grabbed it from MPH. It's not an easy read, from what I see.
Going to read "The little book of Common Sense Investing" by John C. Bogle. Know who is he? He's the founder of Vanguard Group, a fund house in US. Can't remember whether I've read this book...good to re-read this again even if I did. Perspective is definitely different for me this time round.
Source: Bully The Bear
