Investing Lessons From A Mookata

Have you ever tried Mookata? In my opinion, it is simply heaven on a griddle.

There is something quite exciting about cooking food at the dining table ourselves and eating it whilst it is piping hot.

Thailand’s version of do-it-yourself cooking, the Mookata, certainly ranks alongside other similar self-cook meals, such as Mongolian hotpot and our Singapore favourite, steamboat.

It gets better and better

But have you ever noticed that at the start of every hotpot meal, the anticipation from diners tends to be quite high, as everyone waits with chopsticks and ladles poised.

However, for some reason, and despite the freshness of the ingredients, the flavour never quite seems to meet our expectations…at the outset, at least.

But as the meal progresses the stock in the pot gets richer and tastier from the constant dunking of foodstuffs into the soup and onto the griddle. Eventually the broth comes alive with flavours and aromas that are unique to every hotpot.

Investing – especially income investing – can be a bit like that. It can apply equally well to other types of shares too.

Bitter disappointment

As a staunch income investor, I have to confess that I was massively underwhelmed when I put together my first dividend portfolio nearly two decades ago. That is not entirely surprising, given that with a starting yield of 4%, the payout on every $1,000 invested was only $40 a year.

Is that it, I thought to myself? All that hype and hullabaloo about income investing – what a massive let down.

All I got was forty measly dollars in one year for every S$1,000 invested. That is hardly enough to buy a Mookata meal for two, even if you stripped out all the expensive ingredients.

But oh how the investment got yummier over time.

A swell strategy

As the companies ratcheted the payout by around 10% a year, every year, the dividends hitting my account swelled.

After five years, the $40 payout had grown to $60. After a decade, the annual payout was over $100. And after a decade and a half, I was getting four times more than I did at the outset, for doing nothing other than hanging onto the shares.

Whether the economy was doing well or faring badly, the dividends would just keep rolling in.

After 15 years, the yield on the cost of my initial investment was an extraordinary 16%. But guess what? The current yield on the stock today is still a piffling 4%.

How can that be? What is going on?

A simple idea

It is really quite simple. The price of the stock has followed the dividends higher. As the company increased its payouts, so too did the share price – it tracked the dividends upwards.

But the beauty of the investing strategy is neither the increasing dividends nor the capital appreciation. Instead, it is what happens when the dividends are used to buy more shares. The outcome is the total return.

In the case of a seemingly low-yielding stock that has the potential to hike its dividends, the result can be impressive.

The compounding effect of buying more shares, using only the dividends received could generate annual total returns of 20% or more. That is what Warren Buffett meant when he said: “Someone is sitting in the shade today because someone planted a tree yesterday.

Start planting

We all have the potential to sit in the shade tomorrow, provided we are prepared to plant some trees today.

The best time to plant trees is not when everyone is out there with their shovels and wheelbarrows, though. Instead, it is when everyone is indoors contemplating the outcome of events that they have absolutely no control over.

We should, instead, be focussing on the things that matter, such as looking for undervalued shares that the market has discarded in mad panic. So, don’t let the shenanigans in the global economy deter you from doing what you know is right.

Start planting those trees today so you can enjoy your Mookata in the shade tomorrow.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock — Singapore tells you exactly what’s happening in today’s markets, and shows how you can GROW your wealth in the years ahead.

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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 Director David Kuo doesn’t own shares in any companies mentioned.