05 December 2012

Falling into a Dividend Trap? (Dec 2012)

No doubt, many investors prefer only invest in dividend-based counters. Malaysia is famous and already been recognized as one of the hottest spot for those looking for high dividend yields counters. But, things may changed. Why?

First, how do we calculate dividend yields? It's dividing the one year dividends declared by share price. Normally, yield which is higher than 5% was considered attractive. Just when everyone looking to hide their money from risks, yet aiming for higher returns than putting into fixed deposit (3% p.a), dividend counters seems to be their preferred selection.

Should we follow the "professionals"?

Yet, many investors just follow the winds (fund managers, analysts, consultants...) to invest based on the past 6 months, 1 year or 2 years track records. Yes. It's proven track records. But, where we are heading to is more important, right?

If you read the newspaper which published out-dated yields data, good luck. It's was based on last year dividends divided by average share price for last 365 days. For me, it's totally irrelevant for us to make decisions.

On the other hand, what we noticed was the share prices of dividend counters had moved up a lot since second half of last year. Although they have come down abit lately, we must ask the following questions before bargain hunting.
  • Are we jumping in too late now?
  • Are we taking more risks now?
Think about it and start to reconsider your decision again.

Personally, I believes this was not the right time to invest in dividend based counters. Nothing to do with their fundamentals or businesses as they are well-manage, profit generating companies. The problem is their share prices have already gone up a lot, which does not justify with the word "attractive yield" currently. Same goes to dividend based local unit trust funds. If really want to search for high dividend investments, you can still find it handy overseas, not Malaysia. Happy Investing!!!

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