It has been an unbelievable start to this year’s FIFA World Cup. Even if you aren’t overly crazy about football, you can’t help but be amazed by what has happened so far. For starters, the current holders Spain bid an early adios to Brazil following a 5-1 drubbing by the Netherlands. England made an early exit too. The omens were not good for the “Three Lions” after the team’s physiotherapist injured himself in comical fashion by tripping over a drinks bottle. It is little wonder that billions of people around the world have been sat glued to…
For starters, the current holders Spain bid an early adios to Brazil following a 5-1 drubbing by the Netherlands. England made an early exit too. The omens were not good for the “Three Lions” after the team’s physiotherapist injured himself in comical fashion by tripping over a drinks bottle.
It is little wonder that billions of people around the world have been sat glued to their TV sets. It is reckoned that the number of global viewers could top the 3.2 billion who watched the World Cup last time.
Going through the motions
Unfortunately, for us in Singapore, the kick-off times have not been especially kind. Who in their right mind would stay up until midnight to catch the first fixture of the day? But there are lots of people who love football more than they love their sleep.
The unsociable times of the games has made market watchers a little twitchy. They are worried that the Singapore stock market could suffer over the next few weeks while the World Cup goes through its motions.
Interestingly, it was only the other day that someone asked me whether I thought stocks could fall as a result of the keen interest in the World Cup. I looked him straight in the eye and said: “I do hope so.”
He looked at me as though I had just grown another head.
I am quite used to reactions like that. But did he really expect me to say that I want share prices to zoom higher when I am building my portfolio of Singapore stocks?
Don’t get me wrong. I love it when the shares that I buy go up. But I like it even more when they come down.
A rising market
The reason is really quite simple. I am a long-term buyer of stocks, which means that I want to continually add more shares to my portfolio. So I want to buy shares when they are attractively prices. I can’t do that if prices are always rising.
There is another reason. I am an income investor. I get paid dividends for owning shares. These payouts regularly pop into my account, which, as far as I am concerned, is one of the great delights of investing.
The thing to remember is that dividends have no idea what the prevailing share price might be when they are being paid. They get paid regardless.
So, consider this. If I buy $1,000 worth of shares that yield 5%, my annual dividend income is $50. But for compounding to work, I need to invest the $50 to buy even more shares. So, ideally I want to reinvest the dividends as cheaply as possible. That way, I get to buy more shares. And the more shares I own, the more dividends I earn next time around.
The dividend kicker
Compounding has been the secret behind the success of investing in companies such as Dairy Farm (SGX: D01), UOL Group (SGX: U14) and Boustead Singapore (SGX: F9D). Without the dividend kicker, the capital growth from the three companies over the last 20 years would have been 5.1%, 5.7% and 11.4% annually.
But add in the reinvested dividends and the annual total return jumps to 11.1%, 10.4% and 14.9% respectively.
So take advantage of the World Cup distraction to review your portfolio while others might be busy watching the games. That is what I am doing. I love football. But I love investing more.
This year I would love to see underdog Belgium win the tournament. But the real long-term winner could be you, if you capitalise on the market lulls to make prudent additions to your portfolio.
A version of this article first appeared in Take Stock Singapore.
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