At the Motley Fool, we believe that we have the World?s Greatest Investing Community. The beauty of learning as a community is that everyone benefits from each other?s point of view and investing experiences. Every now and then, we come across shared learnings from community members which are worth passing on.
Just last week, one community member, Dividends4Life, shared his learnings after being an income investor for more than 10 years. He highlighted five major lessons and there are two in particular I?d like to share today. Without further ado, here they are:
1. ?Dividend Investing is About Future Yield, Not Current…
At the Motley Fool, we believe that we have the World’s Greatest Investing Community. The beauty of learning as a community is that everyone benefits from each other’s point of view and investing experiences. Every now and then, we come across shared learnings from community members which are worth passing on.
Just last week, one community member, Dividends4Life, shared his learnings after being an income investor for more than 10 years. He highlighted five major lessons and there are two in particular I’d like to share today. Without further ado, here they are:
1. “Dividend Investing is About Future Yield, Not Current Yield”
A poignant point was made that income investing isn’t necessarily about starting with the highest yielding investment you can find. Instead, it’s about ending up in the future with an investment which can give you high-yields on your original investment-cost. Dividends4Life reckons that buying companies with a history of growing dividends, and then letting time do the heavy lifting, is what has helped him get there.
On the local front, an example of a company with a history of growing dividends would be vehicle distributor Jardine Cycle & Carriage Limited (SGX: C07). You can read more about the company here. In the table below, I have summarized the company’s dividends per share for the financial year 2003 and 2013, as well as the dividend yield based on the share price for the company at the beginning of 2004. For reference, the share price for Jardine C&C on 2 Jan 2004 was S$6.00.
|Year||Dividend per share||Yield based on share price on 2 January 2004|
Source: S&P Capital IQ; exchange rate between USD and SGD is 1.32
At the beginning of 2004 – when Jardine C&C’s share price was $6.00 – the income investor would have started out with a dividend yield of only 2.0%. However, if the income investor patiently held his or her shares for the long term, they would be sitting on a handsome dividend yield-on-cost of 23.8% by the end of 2013.
This phenomenon was made possible by the tremendous growth in dividends paid out by Jardine C&C since 2003. This greatly emphasizes the point that ending up with a high-yield investment over the long term is far more important than starting with a high-yield investment.
2. “Successful Dividend Investing is About Substance, Not Style”
Income investing can sometimes be unfairly dismissed as an unstylish and slow method used by retirees alone. But as the example with Jardine C&C above illustrates, it is possible to achieve stupendous returns with the “unstylish” income investing.
If Jardine C&C just maintains its 2013 dividend from here on out, a 23.8% dividend yield-on-cost (for an investment made at the start of 2004) would comfortably outrun the long-term annualised returns of the SDPR STI ETF (SGX: ES3) – a proxy for the market barometer, the Straits Times Index (SGX: ^STI) – of 8.5% since its inception. As Dividends4Life notes: “There are no style points awarded in building a winning portfolio.” The long term performance (substance) is what ultimately matters, not how you arrive there.
Investing can played as a team sport. Learning from the experiences, successes, and failures of many like-minded Foolish folks around us can serve to educate and enrich our own investing lives. If we keep our minds open, we may pick up a valuable tip or two from Foolish folks who have travelled the long-term investing road which lies ahead of us. Fool on!
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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 Chin Hui Leong doesn’t own shares in any companies mentioned.