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Mastering Dividend Investing: 5 Evergreen Investment Principles

Posted on by careyourpresent

Welcome to the captivating world of dividend investing. Imagine an asset where your investments work tirelessly for you, generating cash flow even as you sleep. Dividend investing has gained reputation as a powerful strategy that offers the best of both worlds – capital appreciation and regular dividend payouts. It’s an enticing option for both seasoned investors and those new to the financial landscape.

Unlike other investment approaches that rely solely on market fluctuations, dividend investing focuses on companies that not only show strong growth potential but also share their profits directly with shareholders. These dividends, often paid out quarterly or annually, provide a steady stream of income that can be reinvested or enjoyed as extra earnings. This unique combination of stability, growth, and financial rewards makes dividend investing an attractive choice for those seeking long-term wealth building.

5 Evergreen Investment Principles

Let me share 5 timeless ever green investment principles for dividend investing.

(I have shared these before in my previous posts, but for new readers, let me share again with some edits).

1. No Dividend No Buy and only buy those that you are willing to keep long term of at least 10 years. Must pass sleep test.

Most people although calling themselves dividend investors, but they don’t really behave like a dividend investor. They buy/sell, buy/sell trade the dividend stocks/Reits instead of keeping for dividend. If the price crash, they would sell and cut loss.

You can see from the recent crash of the US Reits such Manulife US Reit, Keppel Pacific Oak US Reit, Prime US Reit – initially the investors sound so confidence, freehold assets, US assets etc., good rental income etc.. But see what happened now? Many of them cut loss after the price drop 50% or more.

If you have bought MIT at $2.80 instead of Manulife US Reit at $0.70, likely you won’t cut loss for MIT but will cut loss for Manulife, especially if you have put in an amount larger that you are comfortable with (see Rule 3 below).

Hence this first rule is very important. Please only buy reits/stocks that you are willing to keep at least 10 years, no speculation, no FOMO (Fear or Missing Out). Don’t listen to others. Have independent mind. Must pass sleep test.

Take for example, Development Bank of Singapore (DBS), Singapore Exchange (SGX), Mapletree Industrial Reit (MIT), Mapletree Logistic Reit (Mlog), Capitaland Ascendas Reit (Areit), Frasers Centre Point Trust (Trust), NikkoAM-STC Asia Reit (CFA) etc. No people will cut loss buying these, they will simply add more. Yes, the yield is low, but on long term basis, it is a 99% sure win. Remember Tortoise and Hare Story, Tortoise wins. Many people are enticed by high yield instead of the fundamental behind the companies which in the end lose their hard-earned money and cut loss when the shares drip in prices.

Just keep buy and collect dividend and reinvest for good stocks/reits. You will get this picture below.

2. GUTS (buy big) and PATIENCE (wait crash/dip) and dare to HOLD VERY LONG, think long term (10 years at least)

Most people are looking at short term. They should look at long term (10 years at least). If they did their shares selection well as per rule 1 above, the next step is to have patience and wait. When the time come, example 2020 March Covid Crash, Reits dip due to interest rates etc, they should be brave and buy! However, many don’t have the guts to buy when come. If even they have, they don’t dare to buy big. even if they dare to buy big, they don’t dare to hold. Additionally, people keep want to wait for lower price and then missed!

Are you behaving the same way as I have described above? I believe most are. Let me share a few rules that I have learnt:

  • Buy only dividend growth companies that I know Fundamental well so that I will not cut loss. Example, companies with yield >5% with net cash, low payout ratio, sustainable business. Or simply buy those big names that could rarely goes wrong in my rule 1 above.
  • Be patience. Do research while waiting.
  • Red buy, green sell. Similar to buy discounted groceries in supermarket.
  • Focus cashflow and certainty.
  • Few cents don’t matter. Can’t always buy at bottom price or sell at top price. Good price just dca buy and keep.
  • Better to put big sum (e.g. 100k) in good companies like MIT MLOG FLCT AREIT PLIFE DBS SGX etc for 10% than 10k in less strong stock for 10% gain.

3. Position size Important and no leverage

Position size important and possibility no leverage if you are not sure what you are doing. You can set for example 5% per counter, then you will have 20 counters. Chances of 20 good shares (if you have followed Rule 1 above) dying at the same time, not paying dividend at the same time is very very low.

This is especially true when portfolio get large, example 1 million and above. One should take less risk and do capital preservation. Why? 1 million at 6% already give you $5k per month (not difficult to get 6% yield with 2% cap gain every year). $5k per month is already a very good salary for most people.

However, people want haste and earn more. In the end, they lose more by putting too much in something which can’t let them sleep well. In the end they cut loss and lose money. Hence, only put the amount that you are comfortable with; that would enable you to sleep well.

4. No earn no sell especially for dividend stock. Keep long term, no stop loss policy because point 1 is followed.

This rule is contrary to what most people would do. No cut loss policy.

If you didn’t do any leverage/plan allocation well (Rule 3) and only buy good stocks that let you sleep well (Rule 1), there is no need for you to cut loss. (However, if fundamental changes, please cut loss unless you are confident of recovery).

Price drop, just hold and collect dividends as “painkillers”. Throughout the years, treat the dividend (or simply use the Trading around Core Strategy – Rule 5 below) to reduce the average cost of your shares. The worst case is stock goes to zero or in most case, your average cost will be reduced over time.

5. Trading around Core with only Good FA Dividend Reit/Stock

Of course, it is very hard to curb itchy hands. People feel that it is very hard to do nothing. You have to keep buy sell buy sell, especially if you keep seeing the shares of the companies that you are holding are going up and down every day. Hence what can we do? We can use Trading around Core Strategy.

This simply means that you allocate for example 100k to buy Share XXX for 5% yield. One can simply keep DCA down to keep and collect dividend (price goes down, dividend yield goes up). As long as the total amount of share XXX that you are holding doesn’t exceed your allocation (in this case 100k), you can do a trade buy/sell buy/sell 1-2 cents for profits to reduce your average cost.

For example, you plan to allocate 100k to Mapletree Logistics Trust (Mlog). Currently you are holding only 50k worth of Mlog. You can strategise and buy 10000 shares of Mlog at $1.58 and sell at $1.61. Every trade will win you few hundred dollars which you can treat it as lowering your average holding cost of the share. In the worst case, if the price drops below $1.58, it doesn’t matter too, you can just keep it and collect dividend. Do note that this only work if you follow Rule 3 (allocation) and Rule 1 – only applicable to those that you are willing to hold long term and passed your sleep test.

Good articles that you should read!

People are drawn to dividend investing.

Why? Firstly, dividends provide a regular stream of income, allowing investors to receive a portion of the company’s profits on a periodic basis. This can be particularly attractive for individuals seeking consistent cash flow or looking to supplement their existing income. Additionally, dividend investing is often viewed as a more stable and predictable investment strategy compared to relying solely on capital appreciation.

I always write and share articles, especially on dividends which many people love them. Do read them!

Alternatively, you can go the right side of my page, there is a search bar where you can simply search “dividend” to see all my articles related to dividends!

Of course, you can search for other things that would interest you such as “Careyourpresent”, “Reits”, “Side Hustles”, “Fixed Incomes”, “Savings” etc.

CAREYOURPRESENT

Money just buy you the chance of freedom.

When you are young and working, you exchange time for money. When you are old, you can have lots of money but you can’t buy time back, especially the things that you have missed while busying striking out in career. Of course, if you love your career, and consciously know that you are missing out the first time your child walk or talk, that’s ok, but if you are the other spectrum, please do something about it.

Your kids grew up and they no longer need you to accompany them. They no longer want to sit on your lap to share/do things with you…all these time you spent in your 9 to 6 or even longer cubicles…can the money that you have earned by you back these?

We always thought we have more time with our old parents, but we are wrong. Time with them is ticking away every day. One day it will suddenly be gone. There is no regret medicine, no reset in time. Gone is gone and cannot come back. No matter you are billionaires or millionaires, you cannot reset this.

We always thought that we have more time with our spouse every day, but we are wrong. One day they will be gone too. When you read this, please go tell your spouse that you love him/her and he or she is the best thing that you ever had in your life.

I have picked out some of the more life reflecting articles of the CAREYOURPRESENT series. Do read them:

You can read more about my articles on Careyourpresent via the Category “Careyourpresent” or simply click “Careyourpresent” via the main menu bar.

REMEMBER:

Love your life daily.

You have one less day with your spouse, parents, children and yourself.

Time is ticking away.

For each passing day,

Enjoy and Treasure your Life!

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Category: Investment and Finance

2 thoughts on “Mastering Dividend Investing: 5 Evergreen Investment Principles”

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