Investing in dividend stocks can actually do more harm than good? I was looking at this local You-Tuber channel and his proclamation and nearly fainted. First and foremost, I think it is strange that someone can actually brand a particular type of investor as "growth investor" or "dividend investor". I am not sure whether such a simplistic view holds true given that most investors actually invest in a number of assets and stocks. Anyone, for me, I guess i am mostly a "dividend investor" mentioned by the You-Tuber so I will proceed to examine some of the interesting points raised by the You-Tuber below:
1. One should not invest just based on dividend criteria alone
Of course. I thought every investors know this. The high dividend yield trap is a well known phenomenon. We need to look at many aspects of the business and also macro-economic situation.
Of course. I thought every investors know this. The high dividend yield trap is a well known phenomenon. We need to look at many aspects of the business and also macro-economic situation.
If we look at dividend alone, then all investors would have invested 100% of their portfolio in Dasin Retail Trust for a 15% dividend distribution yield. But obviously, no one does that right- in view of the significant risk of default of bank loans.
2. Dividend does not matter at all
According to this You-Tuber, whenever a company pays dividends, the stock price will drop by the same amount. Hence dividend does not matter at all and it is just a "forced withdrawal". Yes or No? Yes according to Accounting Theory. But "No" based on imperfect market. For example, on 3rd January 2022, Keppel DC REIT was trading at S$2.47 per unit. Then on 31st Jan 2021 Ex-Dividend date, its price was only S$2.14 per unit which is a drop of S$0.33 per unit despite dividend declared of only S$0.04927 per unit for 2nd half of 2021. What I am trying to say is that real-life situation are complicated.
3. Hard to compound/reinvest dividends that has been paid out.
The You-Tuber mentioned that if you get say S$40 dividends from your stock investments, it is hard to reinvest this back as the standard board lot size is 100 units. One would have to wait till the dividends grew to a significant amount to reach at least 100 units (the standard board lot size on SGX) to re-invest the dividends proceeds. I have to say that this is one of the weirdest point I ever heard. SGX took the effort to reduced the standard board size from 1,000 units to 100 units already since January 2015 for the benefit of all investors.
Let's use Mapletree Industrial Trust as an example which cost S$2.52 per unit. 100 units will be S$252. Assume one has S$40 of dividends, one just need to top up S$220 and above to participate in the reinvestment. This is actually quite easy to reinvest back the dividends. The only show stopper will be the high traditional brokerage fees which has a minimum charge of around S$30 per trade. However, since online brokerages like Tiger Brokers ramped up their businesses, they have been offering very attractive commission of 0.03% or minimum S$0.99 per order.
Parting Thoughts
A dividend strategy actually matters a lot to me personally. The "forced withdrawal" allows one to keep or re-deploy the cash generated from the business at regular intervals during the year. If anyone told you that they consistently know the exact exit time in the market to sell off their growth stocks, chances are that these are fake experts. Hence the dividend strategy instead provides much flexibility in terms of the options available on how to re-allocate resources for one's overall investment portfolios.
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