Ask any investor on the street if they’ll want a share with a dividend yield of 20% and you’ll likely get hit with eager responses like ‘What’s the ticker symbol? Tell me, quick!’ Now, turn around and ask them if they’re willing to wait 10 years for the 20% yield to materialise and the response should be so cold that tropical Singapore would look like the Artic. But, that long wait is the secret to that 20% dividend yield. In other words, the secret is time. What’s the secret again? Oh! It’s Time! Let’s take the following four shares…
Ask any investor on the street if they’ll want a share with a dividend yield of 20% and you’ll likely get hit with eager responses like ‘What’s the ticker symbol? Tell me, quick!’ Now, turn around and ask them if they’re willing to wait 10 years for the 20% yield to materialise and the response should be so cold that tropical Singapore would look like the Artic.
But, that long wait is the secret to that 20% dividend yield. In other words, the secret is time.
What’s the secret again? Oh! It’s Time!
Let’s take the following four shares as an example.
|Company||Price on 1 July 2004||2003’s Dividend||Trailing Dividend Yield on 1 July 2004|
|Jardine Cycle & Carriage (SGX: C07)||S$6.30||S$0.15||2.4%|
|Vicom (SGX: V01)||S$0.96||S$0.063||6.6%|
|Super Group (SGX: S10)||S$0.44||S$0.008||1.8%|
|Jardine Matheson Holdings (SGX: J36)||US$11.1||US$0.33||3.0%|
On 1 July 2004, with the exception of Vicom, the other three shares would hardly have caught the eye of impatient investors who wanted a big dividend income right from the start. But look what can happen if an investor bought those shares more than 9 years ago and held them till today.
|Company||Price on 1 July 2004||2012’s Dividend||Trailing Dividend Yield Based on 1 July 2004’s Cost Basis|
|Jardine Cycle & Carriage||S$6.30||S$1.508||23.9%|
|Jardine Matheson Holdings||US$11.1||US$1.35||12.2%|
All four shares are now able to give its investors great yields based on their cost basis back on 1 July 2004. That’s what time and patience can do for you.
Not having long-term foresight
Thing is, it’s not always the case where a patient investor gets rewarded duly after holding on to a share for a long period of time. Other factors such as the company’s cash flow situation, balance sheet strength, and sustainability of its business model, to name but a few, are also very important.
But, if an investor has managed to seize onto a good business and if it’s given time to flourish, it can provide great returns.
Investors often say they’re thinking long-term. But when they’re out looking for future income and see a share with a currently low yield, they chuck it aside – without much consideration of the reasoned probability of much greater dividends in the future – because the lure of instant gratification can prove to be overwhelming. That can be detrimental over the long run.
If you’re investing to plan for a retirement that’s 30, 20 or even just 10 years away, and have managed to find a good business, why not give it the time it needs to flourish and provide you with that hypothetical-but-achievable mouth-watering 20% dividend yield?
Foolish Bottom Line
Ultimately, great long-term dividends are akin to planting a tree. The seed starts out small and initially the young sapling does not seem like much. But give it some time, and all of a sudden, you find yourself being able to bask in the shade of its canopy and lean on its sturdy trunk for support.
At Motley Fool Singapore, we believe in long-term investing. It’s no different with dividends. Think long-term.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Super Group