Saturday, January 15, 2011

A Guide to Picking Dividend Stocks

In my previous post, I talked about the the power of dividend stocks. Today, I shall share my very own guide to picking dividend stocks. Of course, some investors are more stringent while others are more lax. So, feel free to make adjustments according to your personal risk appetite and investment style.


A guide to picking dividend stocks:


1. Dividend Yield of at least 6% (to beat the rising inflation in Singapore T T )


2. P/E ratio of roughly between 13 to 17 for Singapore firms


3. Consistent, stable and regular distribution over the last 10 years


4. Recurring revenue streams in a defensive economic sector


5. Stock Price is not volatile 


6. Capable, prudent and forward-looking corporate management without over-leveraging 




Alright. Now, let's put the so-called blue chips in my "Singapore-flavoured" dividends portfolio to the test. (I will deal with the REITs at a later date because they are a whole new ball game altogether). I will grade each criterion using "Excellent", "Moderate" and "Poor", just like a teacher grading pupils in school ^^ 


Criterion 6 will not be included in the grading because it is pretty subjective for investors.




Singapore Press Holdings (SPH)




1. Dividends Yield FY2010: 6% - 7% (excellent)
2. P/E ratio: 13 - 14 (excellent)
3. Distribution over the last 18 years, even during the 2008 financial crisis (excellent)
4. Recurring revenue streams from print media and property rental (excellent)
5. Stock price will usually drop after XD and during market corrections (moderate)
Overall Verdict: Excellent income stock ^^




Starhub:


1. Dividend Yield FY2010: 7% - 9% (excellent)
2. P/E ratio: 13 - 14 (excellent)
3. Distribution over the last 5 years, even during the 2008 financial crisis (moderate)
4. Recurring revenue streams from voice, data, broadband and cable services (excellent)
5. Stock price will usually drop after XD and during market corrections (moderate)
Overall Verdict: Excellent income stock ^^


SingPost:


1. Dividend Yield FY2010: 5% (moderate)
2. P/E ratio: 13 (excellent)
3. Distribution over the last 7 years, even during the 2008 financial crisis (moderate)
4. Recurring revenue stream from postal and package delivery service (moderate)
5. Stock price does not fluctuate much even during market corrections (excellent)
Overall verdict: Moderate income stock


Okay. So, that's my overall verdict on SPH, Starhub and SingPost as income stocks. I referred to them affectionately as my "Triple-S" stocks because their names start with the letter "S". I know, I know, we are not supposed to get emotionally-attached to our stocks, but I just could not resist these three companies. :p


So, do you have other ways of choosing dividend stocks? Please share your ideas and opinions by commenting below. ^^


Peace out,
Dividends Warrior

6 comments:

Drizzt said...

I dun use PE and PTB. they are a reflection of risk of that industry and not the value of the stock.

AK71 said...

Apart from stocks, would you not consider some REITs? ;)

springpig said...

Hmm... may I suggest 1 more criteria?
"Competition" - no/not many competitors

That's 1 of the reasons why I picked Singpost(though dividend yield is only about 5%); It's a monopoly business! ;)

Dividends Warrior said...

Hi springpig,

I agree. The less competition, the better. ^^

Anonymous said...

How about SIA and SIA Engg, the dividends are good and exposure to the Airline Industry

Berryaotq said...

Hi springpig, I agree. The less competition, the better. ^^

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