Return of Watch List of High Dividend Yields Stocks on 5^th April 2019

Dear participant,

I love buying good dividend stocks for the following reasons:

1. A stock dividend is a real thing. You receive it in cash.
2. It provides a “floor” for share price when bear stampedes, as dividend is good and we are not afraid of the share price dropping further.
3. Dividend keeps us in touch with the real world and will not chase the share when it is trading at sky high price.
4. Dividends prevents you from being side tracked by events which have little or no real benefits to shareholders, such as bonus issues, share split, free warrants, corporate moves etc.
5. It gives out a positive signal to investors that the company is doing well, and hence able to return cash to shareholders.

High Dividend Yield (DY) investing strategy is a very plausible quantitative investment strategy to provide satisfactory and safe long-term return. This has been proven in numerous academic researches and the good experience of many super investors.

Less than four months ago, I have posted in our private blog and sent to you a watch list of carefully selected and diversified 26 high dividends yields stocks from my own expanding data base meeting the above criteria following the high DY investing strategy for your consideration for investment. The closing prices of the stocks were on 12^th November 2018 as shown in Table 1 in the Appendix.

Here were some checks on the stocks following this high DY investing strategy:

1. Dividend yields at least the same as the bank fixed interest rate, currently about 3.5%.
2. Dividend pay-out ratio should be less than a cut-off, say 65-85% so that there is money left and the business can still grow with the reinvestment for potential increase in future dividend.
3. Reasonable expected growth rate in earnings at least matches the overall economy, say >4%, also for the potential growth in dividends in the future.
4. Strong balance sheet for sustainability of dividend payment, even at down turn of broad economy.
5. High return of equity and capitals > 10% such that the dividend payment is not only sustainable, but grows from internally generated funds.
6. Good free cash flows from where dividend is paid from internally generated funds, and not from more borrowings or issuance of more shares.
7. Shareholder-friendly management dedicated to treating shareholders as owners. A good and consistent dividend history will serve as an indication.

Four months have passed. Table 1 in the Appendix shows the performance of the portfolio of 26 stocks.

Over the last four months, the broad index declined by 1.4% from 1665 points on 11^th December 2018 to 1642 points on 5^th April 2019. The FTSE Bursa Malaysia Small Cap Index rose by 0.8% from 13024 to 13124 points during the same period. The portfolio bucked the trend of the broad market and returned an average of +6.2% during the same period, including all dividends paid or ex-dated during the period. This total return out-performed the return of the broad market by a wide margin of 7.6%.  

There were 7 losers out of 26 stocks, or a success rate of 73%.

The notable double-digit outperformers in the four months are Carlsberg at +34.9%, SKPR at +26.2%, Heineken at +24.6%, FAVCO at +18.2%, HLI at +15.6%, Globtronics at +12.4%, and Magni at +12.3%.

A little less ideal, there are 4 under-performers with double-digit losses. They are Superlon at -13.8%, LCTitan at -11.5% and Homeritz at -11.7%. This sprang a surprise to me as this high DY strategy has proven to be a safe investment strategy. The earlier 2 was due to poor sets of quarterly results announced during the period. This again reaffirm the need of diversification in our investments, otherwise if you were so unlucky to have been holding those 3 stocks alone, you would have lost a lot of money.

In summary, the portfolio of 26 high dividends yields stocks selected four months ago did very well compared to the performance of the broad market, with a high excess return of +7.6%. Furthermore, there are a greater number of higher excess returns winners and fewer and less losses in losers.

Heads I win more; tails I lose less.

That is the essence of fundamental value investing.

It is noted that the above result is a short-term result which may not reflect the long-term return. Building wealth is a long-term endeavor, and that must always be embedded into our heads.

Some of the stocks may have risen in prices above their estimated intrinsic values, and for some their fundamentals may have deteriorated. There may also be new stocks meeting the high DY strategy.

I will forward you a revised portfolio of high dividend stocks for you to consider investing in soon.

High dividend yield investment strategy, I must emphasize that it is not merely picking the stocks with high dividend yields, is a very plausible investment strategy. It has proven to be working in the mid and long term. My own personal experience has proven so.

The quantitative high dividend yield investing strategy is just one of the many plausible and proven successful ways to invest in the stock market to build long-term wealth steadily, safely but surely. There are many other ways to achieve satisfactory results, but they all boil down to one very basic principle; that one should treat investing in a stock as investing in part of a business, that the success of investing comes from investing in good companies, when they are selling cheap or at reasonable prices.

I do not know much about other method, but intuitively, I don’t think any other method is more reliable than this for a retail individual investor. However, this is just my own opinion. People who sell flowers do normally say their flowers are more flagrant than others.

If you do not have the necessary knowledge and experience but wish to learn about this fundamental approach in investing in a more comprehensive and structured manner, and have someone to ask questions when encountering problems while learning, or if you do not have time and simply wish to rely on someone who is trustworthy and the proven successful methods in investing to get some ideas to invest in, you may contact me at

ckc13invest@gmail.com

Yes, there is a small fee on this. Good things don’t come free, and free things, especially in investing such as tips, rumors and hypes, as you should have encountered, are normally not good.

Happy investing.

KC Chong