WEBVTT - Invest 101: Do dividend stocks always give returns? 0:00:02.869 --> 0:00:05.170 You're listening to AC N A podcast. 0:00:07.340 --> 0:00:10.549 Hey, hey, everyone. It's Andrea Heng here on the Money 0:00:10.560 --> 0:00:15.720 Talks podcast with your weekly dose of advice on personal finance. Now, 0:00:15.729 --> 0:00:19.439 if you're new here, hit the subscribe button on wherever 0:00:19.450 --> 0:00:23.530 you are listening to us, Spotify, youtube music or Apple Pod. 0:00:23.909 --> 0:00:26.899 This is just so that you will be the first 0:00:26.909 --> 0:00:29.979 to know. You'll get that little ping alert whenever a 0:00:29.989 --> 0:00:33.900 new episode drops. Now, I have my producer, Juani here 0:00:33.909 --> 0:00:36.299 with me today so I am going to get her 0:00:36.310 --> 0:00:39.069 to quickly give me the top financial headlines this week. 0:00:39.080 --> 0:00:43.220 Take it away, June, Andrea Heng. Yes. Are you a Boomer? 0:00:43.229 --> 0:00:46.900 How dare you ask me this question? No, I am not. 0:00:46.918 --> 0:00:49.540 I'm just kidding. Yes, I know you're not. 0:00:49.830 --> 0:00:53.220 But anyway, this just in baby boomers here in Singapore 0:00:53.229 --> 0:00:57.209 are worried. Oh, why? According to a Euromonitor International survey 0:00:57.220 --> 0:01:01.959 conducted early this year, about only 55% of the baby 0:01:01.970 --> 0:01:06.870 boomers are comfortable with their financial situation in 2023 0:01:07.330 --> 0:01:12.660 and they are generally pessimistic about their personal finances. In fact, 0:01:12.830 --> 0:01:16.970 about 26% believe that the situation will get worse. Oh, 0:01:17.040 --> 0:01:20.910 my goodness. That's not very good. You can't blame them though. Right. 0:01:20.919 --> 0:01:25.379 Because not only are the Boomers living longer but their 0:01:25.389 --> 0:01:29.129 parents are also living longer. So, cost of living is 0:01:29.139 --> 0:01:32.069 also perpetually on the rise. That's right. And that's why 0:01:32.080 --> 0:01:34.550 Boomers are more careful when it comes to the spending. 0:01:35.010 --> 0:01:38.629 They are also spending more on health goods and medical services. 0:01:38.639 --> 0:01:43.110 Which understandable and also on education. Oh, that's good. Yay. 0:01:43.120 --> 0:01:47.339 For upskilling. Interesting. All right. What's next? All hot Chris. 0:01:47.589 --> 0:01:52.300 What is the hottest company in the world right now? Oh, wow. Ok. 0:01:52.309 --> 0:01:56.459 I know it's not Apple anymore. It's NVIDIA. That's right. 0:01:56.870 --> 0:02:00.349 It's been constantly in the news recently first for taking 0:02:00.360 --> 0:02:03.709 over Apple and Microsoft to become the world's most valuable 0:02:03.790 --> 0:02:07.809 company, but only for a short while. So NVIDIA makes chips. Well, 0:02:07.819 --> 0:02:10.649 not the kind that we like to eat, but the 0:02:10.660 --> 0:02:14.149 ones that are really important. Ok. They are the chips 0:02:14.160 --> 0:02:18.508 that power, the oncoming A I tsunami, which is why 0:02:18.520 --> 0:02:23.050 everyone is asking how can I get a piece of NVIDIA. 0:02:23.059 --> 0:02:25.570 So that's the interesting thing. So the company's stock has 0:02:25.580 --> 0:02:28.910 been on a crazy climb according to Forbes. If you 0:02:28.919 --> 0:02:32.448 invested $10,000 in the company five years ago, 0:02:32.710 --> 0:02:39.350 that would be worth $345,000 today. My goodness. But at 0:02:39.360 --> 0:02:42.059 the time of this recording things are looking a little 0:02:42.070 --> 0:02:44.709 less rosy. Ok. So you're telling me there's a bit 0:02:44.720 --> 0:02:47.669 of bad news on the front, the stock plunge that's 0:02:47.679 --> 0:02:51.448 my guess correct. OK. That's why you're the journalist, the 0:02:51.460 --> 0:02:55.029 stock has gone down 13% from its peak losing more 0:02:55.038 --> 0:02:56.089 than 500 billion 0:02:56.179 --> 0:02:59.220 in US dollars in market value. Ok. So then the 0:02:59.229 --> 0:03:02.960 big golden question is, what will this mean for investors 0:03:02.970 --> 0:03:06.600 of NVIDIA? Naturally, they will be a lot more cautious now, right? 0:03:06.850 --> 0:03:09.519 But one thing is for sure, even though this tech 0:03:09.529 --> 0:03:12.470 darling has now moved down to the pecking order to 0:03:12.479 --> 0:03:15.918 number three, the story isn't quite over yet. I'm sure 0:03:15.929 --> 0:03:19.538 I agree here's to looking forward to more NVIDIA stories. 0:03:21.550 --> 0:03:27.029 So you like a particular company, you find its value agreeable. 0:03:27.038 --> 0:03:29.750 You know, you like what it does, who its founder 0:03:29.758 --> 0:03:33.990 or CEO is or maybe you just like the logo, 0:03:34.000 --> 0:03:36.619 no harm in that. And perhaps you like it so 0:03:36.630 --> 0:03:39.949 much that you want to own a piece of it. 0:03:40.149 --> 0:03:42.929 One of the most common ways is to become a 0:03:42.940 --> 0:03:45.020 shareholder and buy the company stock. 0:03:45.289 --> 0:03:47.910 But can you only get a piece of a publicly 0:03:47.919 --> 0:03:51.440 listed company? And how do you go about owning a 0:03:51.449 --> 0:03:55.020 piece of that company? Let's ask Abel Lim, he is 0:03:55.029 --> 0:03:59.610 head of Wealth Management Advisory and strategy at UOB. Welcome 0:03:59.619 --> 0:04:00.389 to Money talks. 0:04:00.720 --> 0:04:03.029 Thank you very much for the privilege of being here. 0:04:03.039 --> 0:04:03.259 It 0:04:03.270 --> 0:04:06.300 is absolutely my pleasure. So as a start, give us 0:04:06.309 --> 0:04:09.289 the sharper summary of what a dividend stock 0:04:09.300 --> 0:04:09.649 is. 0:04:09.679 --> 0:04:11.029 That's actually a really good question. 0:04:11.205 --> 0:04:13.195 So when you buy into a company, you're buying an 0:04:13.205 --> 0:04:16.834 equity of that company, the future earnings of that company, 0:04:16.845 --> 0:04:19.744 that's when you become an equity holder in that company. 0:04:19.894 --> 0:04:24.454 So the typical process of identifying a equity still persists. 0:04:24.464 --> 0:04:26.815 So in other words, you either have a top down approach, 0:04:26.825 --> 0:04:29.875 looking at the macros, looking at the industry that is 0:04:29.885 --> 0:04:33.195 participating in and why you should be buying into that company. 0:04:33.204 --> 0:04:35.774 Because you believe in the growth of that company. Conversely, 0:04:35.785 --> 0:04:36.875 there's an alternate view which 0:04:36.980 --> 0:04:40.839 the bottom up approach, just looking at the company identifying 0:04:40.850 --> 0:04:44.660 its growth potential, its ability to deliver alpha or earnings 0:04:44.670 --> 0:04:48.059 for its shareholders and the sectors that is competing in. 0:04:48.070 --> 0:04:49.980 So you look at those companies, so those things don't 0:04:49.988 --> 0:04:52.950 change because you're buying into an equity of that company 0:04:52.959 --> 0:04:56.309 right now, your question was what is a dividend stock? 0:04:56.549 --> 0:04:59.828 So the typical characteristic of a dividend stock is by 0:04:59.839 --> 0:05:02.729 and large, a more mature company, a company that has 0:05:02.825 --> 0:05:05.765 been around for a while, owns the greater part of 0:05:05.774 --> 0:05:07.385 the industry that they are competing in, 0:05:07.394 --> 0:05:07.864 right? And 0:05:07.875 --> 0:05:10.924 when you say mature, how old would this company be? Roughly, 0:05:10.934 --> 0:05:13.703 it varies in terms of industry. So the industry like 0:05:13.714 --> 0:05:17.545 the financial industry, typically you are talking north of 50 years, 0:05:17.734 --> 0:05:20.894 brick and mortar company who have been around, have weather 0:05:20.904 --> 0:05:24.605 through many crisis and market volatilities. This company tends to 0:05:24.613 --> 0:05:28.575 be a lot more stable, a lot better govern better rent. 0:05:28.829 --> 0:05:32.609 So these companies are considered mature, right? So typically when 0:05:32.619 --> 0:05:36.019 these companies are already mature, they do not need to 0:05:36.029 --> 0:05:40.178 have to reinvest every single profit back into the business 0:05:40.329 --> 0:05:43.890 to grow. So essentially, now they have excess cash flow 0:05:44.200 --> 0:05:46.019 and they need to be profitable. Otherwise you have no 0:05:46.029 --> 0:05:47.640 money to pay out, right? So they need to be 0:05:47.649 --> 0:05:50.970 profitable and they have excess cash. That's when they decide 0:05:50.980 --> 0:05:52.169 to pay out a dividend. 0:05:52.178 --> 0:05:53.440 Ah 0:05:53.488 --> 0:05:55.409 ok. So that's why 0:05:55.535 --> 0:05:58.834 the more mature or perhaps the more established the company, 0:05:58.924 --> 0:06:02.643 the better the dividend yield is, would that be the 0:06:02.654 --> 0:06:03.714 correct description? 0:06:03.725 --> 0:06:05.625 Actually? Again, it depends the 0:06:05.635 --> 0:06:06.825 company's performance as well. 0:06:07.355 --> 0:06:07.625 The 0:06:07.635 --> 0:06:09.825 right way to think about it is you want to 0:06:09.834 --> 0:06:13.565 have a company that pays a consistent and a stable 0:06:13.575 --> 0:06:16.904 dividend as opposed to a company that swings wildly in 0:06:16.915 --> 0:06:20.174 terms of its dividend payoff because this can be for 0:06:20.184 --> 0:06:22.154 one detrimental for long term planning. 0:06:22.380 --> 0:06:26.059 Secondly, in terms of expectations, some companies pay very high dividends, 0:06:26.070 --> 0:06:28.190 but you got to understand why is it paying very 0:06:28.200 --> 0:06:31.529 high dividends? Is it because it's truly growing, it's extremely 0:06:31.540 --> 0:06:34.950 profitable and hence paying dividends or is it just paying 0:06:34.959 --> 0:06:36.730 dividends out of cash flow? 0:06:36.738 --> 0:06:37.058 Ah, 0:06:37.070 --> 0:06:40.190 understood. Ok. That's a really good caveat to have and 0:06:40.200 --> 0:06:42.929 to keep in mind. So thank you for that. So 0:06:42.940 --> 0:06:45.600 let me put it this way. As long as I 0:06:45.609 --> 0:06:48.809 have money, can I just go and buy a dividend stock? 0:06:49.049 --> 0:06:51.260 Yes, you can. As long as you have the money 0:06:51.269 --> 0:06:54.559 to participate in these markets. Anyone can participate and go 0:06:54.570 --> 0:06:56.730 to a brokerage. Of course, there are certain age limits 0:06:56.738 --> 0:06:59.839 in Singapore before you can invest into our company. But 0:06:59.850 --> 0:07:04.140 essentially you need to understand the fees and the costs within, 0:07:04.149 --> 0:07:06.859 for example, buying into a share, there's a brokerage fee, 0:07:06.869 --> 0:07:10.549 there's custodian fee if you're buying into a foreign share, 0:07:10.559 --> 0:07:13.100 for example, there's withholding tax that you need to factor 0:07:13.109 --> 0:07:15.309 into your overall returns. Fortunately, 0:07:15.380 --> 0:07:18.320 for us, Singaporeans, we don't have reporting tax. So that's 0:07:18.329 --> 0:07:20.709 one of the key benefits. Why foreign investors like to 0:07:20.720 --> 0:07:22.500 buy a dividend stock in Singapore? 0:07:22.700 --> 0:07:26.470 Understood. Ok. Now I understand why Singapore is such an 0:07:26.480 --> 0:07:28.920 appealing place for them to go and buy dividend stocks. 0:07:28.929 --> 0:07:32.750 So one of the biggest barriers to any new investment 0:07:32.760 --> 0:07:37.720 product is where do we begin? So first, how do 0:07:37.730 --> 0:07:38.299 I know which 0:07:38.309 --> 0:07:38.839 ones to buy 0:07:38.899 --> 0:07:41.609 when it comes to making an investment thesis? You need 0:07:41.619 --> 0:07:41.799 to have 0:07:41.880 --> 0:07:45.609 the right risk appetite for that particular investment vehicle that 0:07:45.619 --> 0:07:49.170 you have chosen by and large. For the first time, 0:07:49.459 --> 0:07:52.880 I would recommend going into an ETF or a mutual 0:07:52.890 --> 0:07:56.299 fund because that's possibly the easiest and possibly even the 0:07:56.309 --> 0:07:59.029 cheapest way for you to participate in the market. Most 0:07:59.040 --> 0:08:03.269 funds has a low minimum threshold of 500 to start with. 0:08:03.279 --> 0:08:05.820 And then you can have regular investment plan that allows 0:08:05.829 --> 0:08:07.779 you to build on your investment and capital in the 0:08:07.790 --> 0:08:08.299 long run. 0:08:08.600 --> 0:08:11.839 The other benefit in a fund is that it's highly diversified. 0:08:12.019 --> 0:08:15.059 You don't have a concentration risk into one particular company, 0:08:15.140 --> 0:08:20.309 but to maybe access to 50 companies with very attractive dividends, 0:08:20.559 --> 0:08:24.220 not just locally but across different sectors and even globally. 0:08:24.429 --> 0:08:27.458 So that in itself is extremely attractive, but of course, 0:08:27.470 --> 0:08:29.880 that comes with a management fee, right? 0:08:29.890 --> 0:08:30.660 So talk to me about 0:08:30.670 --> 0:08:30.859 that. 0:08:30.869 --> 0:08:33.179 Ok, so when it comes to management fee, you will 0:08:33.190 --> 0:08:33.579 want to learn, 0:08:33.672 --> 0:08:37.522 look at the total expense ratio te of a company 0:08:37.533 --> 0:08:41.602 of underlying fund. So that takes into consideration the management fee, 0:08:41.612 --> 0:08:45.062 custodians fee and transactional fee. For example, basically it's like 0:08:45.072 --> 0:08:48.062 a service charge, it's a service charge. Yeah. So typically 0:08:48.072 --> 0:08:50.643 once you factor that in, that should be part and 0:08:50.653 --> 0:08:54.903 parcel of your investment decision. Now if you have more ammunition, 0:08:55.023 --> 0:08:57.602 higher risk profile and you want to express a view, 0:08:57.612 --> 0:08:58.653 for example, your view 0:08:58.745 --> 0:09:01.026 is that rates are going to stay very high. Financial 0:09:01.035 --> 0:09:04.444 institutions will do extremely well because of a net interest margin. 0:09:04.535 --> 0:09:06.846 You may want to participate into a bank that pays 0:09:06.856 --> 0:09:10.526 very attractive dividend. But bear in mind you're holding a 0:09:10.535 --> 0:09:13.945 single equity, a single name and I'm not saying it 0:09:13.955 --> 0:09:16.385 will happen, but many things can happen when you have 0:09:16.395 --> 0:09:17.995 such concentration. Anything 0:09:18.005 --> 0:09:21.574 can happen. Basically, it's putting all your eggs in one 0:09:21.585 --> 0:09:23.726 basket versus spreading it out. 0:09:24.000 --> 0:09:27.968 Ok. So what is it that makes a good dividend 0:09:27.979 --> 0:09:28.359 stock? 0:09:28.369 --> 0:09:31.209 Ok, typically, and I've touched on this earlier, these companies 0:09:31.219 --> 0:09:34.320 are mature, they have already added a lot of the 0:09:34.330 --> 0:09:37.549 volatility which the industry that they are still participating in 0:09:37.559 --> 0:09:40.700 have already trans. So a lot of this company have 0:09:40.710 --> 0:09:44.460 a well-established business, very well run govern at the same 0:09:44.469 --> 0:09:48.858 time and with very clear business models and it's identifiable who, 0:09:49.090 --> 0:09:51.010 where most of their income streams come 0:09:51.020 --> 0:09:51.309 from. 0:09:51.320 --> 0:09:53.030 So it's very tried and tested, 0:09:53.039 --> 0:09:55.559 tried and tested and also the fact that many of 0:09:55.570 --> 0:09:58.239 the risk has already been factored in or has been experienced. 0:09:58.250 --> 0:10:00.380 So they know how to manage some of this long 0:10:00.390 --> 0:10:03.270 term risk. So a lot of these companies again belonging 0:10:03.280 --> 0:10:06.409 to the blue chip space and widely recognized, not only 0:10:06.419 --> 0:10:08.469 in the domestic market but on a global stage, 0:10:08.479 --> 0:10:09.130 right? And 0:10:09.140 --> 0:10:13.590 it makes me think about all the various companies that 0:10:13.760 --> 0:10:13.960 were 0:10:14.210 --> 0:10:19.190 mostly watched and scrutinized during COVID, a lot of aviation companies, 0:10:19.200 --> 0:10:23.500 for example, a lot of construction companies during COVID, some 0:10:23.510 --> 0:10:28.950 of these companies had cash infused in those situations. How 0:10:28.960 --> 0:10:33.039 are shareholders affected them because then that cash that you 0:10:33.049 --> 0:10:35.919 talked about, right, that extra profit that typically goes to 0:10:35.929 --> 0:10:39.210 us as dividend payouts to investors. What happens to 0:10:39.330 --> 0:10:42.390 that when that cash has to be used for an 0:10:42.400 --> 0:10:43.330 emergency like 0:10:43.340 --> 0:10:43.659 COVID? 0:10:43.669 --> 0:10:48.229 Excellent question. Now COVID was a exceptional time, not only 0:10:48.239 --> 0:10:52.429 for us but for any company that's operating around the world, 0:10:52.440 --> 0:10:57.289 but more importantly, the survivability of the company really does 0:10:57.330 --> 0:11:00.830 require the company to be able to evolve and be 0:11:00.840 --> 0:11:04.348 able to adapt to the COVID situation. Airlines for example, 0:11:04.450 --> 0:11:06.569 had a really tough time because no one was flying, 0:11:06.580 --> 0:11:10.190 no one is allowed to fly their revenue stream totally 0:11:10.200 --> 0:11:13.000 grounded to a halt. So in the absence of which 0:11:13.010 --> 0:11:15.130 they actually focus a lot of their efforts towards the 0:11:15.140 --> 0:11:19.650 commercial side which is transportation of goods pivoting, it was 0:11:19.659 --> 0:11:23.119 pivoting and they managed to at least account for some 0:11:23.130 --> 0:11:26.669 of the revenue stream. So typically in periods of stress, 0:11:26.679 --> 0:11:29.468 like such companies will tend not to be 0:11:29.570 --> 0:11:32.590 so generous in terms of their dividend payout because they 0:11:32.599 --> 0:11:34.909 need to ensure that they are sufficient cash flow to 0:11:34.919 --> 0:11:39.719 ensure the company survives during such difficult times. So obviously, 0:11:39.729 --> 0:11:44.489 you won't see an extravagant dividend announcement. Conversely when the 0:11:44.500 --> 0:11:47.510 markets are doing very well and the industry has picked 0:11:47.520 --> 0:11:51.090 up on there's exceptional profits. You will see companies like 0:11:51.099 --> 0:11:54.549 such announcing an exceptional dividend and a little bit extra 0:11:54.820 --> 0:11:58.640 to reward shareholders, investors for being loyal to them, holding 0:11:58.650 --> 0:12:01.950 their equities and staying with them during difficult times 0:12:01.960 --> 0:12:04.978 when it comes to the shareholders sentiment, wouldn't that make 0:12:04.989 --> 0:12:06.840 the company sort of beholden 0:12:07.289 --> 0:12:10.709 to their shareholders to their investors? Because if I'm not 0:12:10.719 --> 0:12:14.429 getting a dividend this year, what makes me think I'm 0:12:14.440 --> 0:12:16.869 going to get it next year or in the future, 0:12:16.880 --> 0:12:19.880 even if the company is long established and has had 0:12:19.890 --> 0:12:21.349 those tried and tested moments. 0:12:21.359 --> 0:12:24.099 So typically, when an investor buys into a company, there 0:12:24.109 --> 0:12:27.460 are two reasons particularly in a dividend stock, one, they 0:12:27.469 --> 0:12:30.210 want to buy it for the dividend yield which you articulated. 0:12:30.219 --> 0:12:31.750 So in terms of stress, they may not 0:12:31.840 --> 0:12:33.619 be getting a dividend. But if you look at the 0:12:33.630 --> 0:12:36.770 historical track record of the said company with a very 0:12:36.780 --> 0:12:40.960 stable and regular dividend payout, this does suggest that when 0:12:40.969 --> 0:12:45.080 things normalizes the company is capable of paying a similar 0:12:45.090 --> 0:12:48.179 or even better dividend in the future. The other thing 0:12:48.229 --> 0:12:51.140 is that when you buy into a share in equity, 0:12:51.150 --> 0:12:55.169 you're also looking for capital appreciation. What's capital appreciation price movement? 0:12:55.179 --> 0:12:56.119 Ie by low 0:12:56.390 --> 0:12:58.020 sell high, that's the best way to make money in 0:12:58.030 --> 0:13:01.369 the market, actually the best way, the best way. So 0:13:01.469 --> 0:13:04.890 in terms of stress, again, company stock price will come 0:13:04.900 --> 0:13:08.919 down because of the uncertainties, market sentiments are poor. People 0:13:08.929 --> 0:13:11.319 tend to sell down the share because maybe they are 0:13:11.330 --> 0:13:14.809 not so confident about the company's profitability during that period 0:13:14.820 --> 0:13:18.039 or maybe in the future. Now, conversely, investors with the 0:13:18.049 --> 0:13:20.809 rigged appetite will actually see this is an opportunity 0:13:21.070 --> 0:13:24.130 I really should get myself into this share or this 0:13:24.140 --> 0:13:26.869 name because I think in the long term, not only 0:13:26.880 --> 0:13:30.968 will this company survive this current episode, it will thrive 0:13:30.979 --> 0:13:33.750 and do a lot better post episode and I will 0:13:33.760 --> 0:13:36.750 be in the money. So capital decision by low sell high. 0:13:36.760 --> 0:13:36.919 So 0:13:36.929 --> 0:13:40.609 essentially the history of the company's performance and the opportunity 0:13:40.619 --> 0:13:43.589 for capital appreciation. These are the things that dividend investors 0:13:43.599 --> 0:13:46.119 would like to look out for. So when I invest 0:13:46.130 --> 0:13:48.039 in a dividend stock, I would 0:13:48.151 --> 0:13:53.221 expect some returns. So when is payday for dividend investors 0:13:53.231 --> 0:13:55.190 and how are they paid out? Ok. 0:13:55.200 --> 0:13:58.210 It varies again from company to company, industry to industry 0:13:58.221 --> 0:14:01.120 as well. So dividends can come in the form of quarterly, 0:14:01.130 --> 0:14:04.481 half annually or even annually. So it really depends on 0:14:04.491 --> 0:14:07.559 the board of directors within the said company and their 0:14:07.570 --> 0:14:11.950 normal practices. So typically we see companies actually pay out 0:14:11.960 --> 0:14:14.911 on an annual basis and this money paid out in 0:14:14.921 --> 0:14:15.140 various 0:14:15.231 --> 0:14:17.892 form, it can be a in the form of cash. 0:14:17.901 --> 0:14:20.861 So it's a direct credit into your account. Conversely, you 0:14:20.872 --> 0:14:24.262 can be paid via more shares, ok? And if you're 0:14:24.271 --> 0:14:27.552 paid more shares, you can either a sell those shares 0:14:27.562 --> 0:14:31.291 for money or for the long term investor reinvest it. 0:14:31.302 --> 0:14:33.892 So the best way if you have a long term horizon, 0:14:33.901 --> 0:14:37.122 reinvest the money because the moment you reinvest the money, 0:14:37.132 --> 0:14:40.331 you actually invoke the eighth wonder of the world, the 0:14:40.341 --> 0:14:42.101 eighth wonder of the world. 0:14:42.312 --> 0:14:43.333 Tell me more. 0:14:43.382 --> 0:14:45.973 The eighth wonder of the world is a power of compounding. 0:14:45.982 --> 0:14:49.132 So when you reinvest your money, you reinvest the share 0:14:49.143 --> 0:14:52.122 into the company, you create two streams of income, the 0:14:52.132 --> 0:14:55.372 natural income, which is the dividend payout. But because of 0:14:55.382 --> 0:14:58.372 the fact that you are reinvesting it, you're earning interest 0:14:58.382 --> 0:15:01.093 upon the interest or dividend upon dividend. 0:15:01.103 --> 0:15:04.622 Ok? So it's really a good strategy to have it 0:15:04.632 --> 0:15:08.232 stacked on to each other so that you're just maximizing 0:15:08.242 --> 0:15:09.293 really your return 0:15:09.544 --> 0:15:10.114 optimizing 0:15:10.124 --> 0:15:10.494 for sure. 0:15:10.504 --> 0:15:13.854 Yeah. Yeah. Ok. So can a company decide to cut 0:15:13.864 --> 0:15:18.434 dividends and in some cases not even pay out at all? 0:15:18.443 --> 0:15:21.554 Yes, a company can do that. It's within their jurisdiction. 0:15:21.864 --> 0:15:25.054 But typically when a company chooses to dial down or 0:15:25.064 --> 0:15:28.734 to cut dividend, it's usually a pretty bad sign that 0:15:28.744 --> 0:15:32.533 the company isn't performing particularly as well. There are certain 0:15:32.544 --> 0:15:36.374 challenges that they are gathering sufficient ammunition to meet 0:15:36.664 --> 0:15:40.174 and these are typically not ideal situation for a company 0:15:40.184 --> 0:15:42.455 to be in. So the news that goes out into 0:15:42.465 --> 0:15:44.844 the industry or to the markets tend to be pretty 0:15:44.854 --> 0:15:48.984 negative when a company does cut or stop dividends. That 0:15:48.994 --> 0:15:50.895 is also one of the reasons why a lot of 0:15:50.905 --> 0:15:54.114 these dividends are more dud in the onset so that 0:15:54.125 --> 0:15:55.414 it doesn't send out the wrong signal, 0:15:55.424 --> 0:15:58.335 ah, understood. So there's a lot of care that goes 0:15:58.344 --> 0:16:01.994 into sort of looking after what comes out of the company, 0:16:02.005 --> 0:16:03.455 be it dividends, be 0:16:03.556 --> 0:16:07.236 news, be it crises or even good news. There has 0:16:07.245 --> 0:16:11.776 to be a measure to everything. How often does such 0:16:11.786 --> 0:16:17.846 crises happen to established companies to the point where they decide? Ok, 0:16:17.856 --> 0:16:19.945 we need to cut the dividend and not pay you 0:16:19.955 --> 0:16:21.575 at all. How often does this happen 0:16:21.585 --> 0:16:26.406 for very established businesses? Surprisingly, it's not very often. In fact, 0:16:26.416 --> 0:16:30.546 most of this company usually have some layer of additional 0:16:30.875 --> 0:16:31.656 fats 0:16:32.469 --> 0:16:35.880 or cash reserve that still there to pay out as 0:16:35.890 --> 0:16:36.820 form of dividend. 0:16:37.010 --> 0:16:40.700 So enough of the doomsday talk, tell us what's the 0:16:40.710 --> 0:16:44.210 biggest benefit of owning a dividend 0:16:44.219 --> 0:16:44.919 stock. 0:16:44.929 --> 0:16:46.599 There are many benefits when it comes to 0:16:47.210 --> 0:16:49.849 holding a dividend stock, but I do want about a 0:16:49.859 --> 0:16:52.710 pure dividend portfolio, but I might come to that later. 0:16:52.940 --> 0:16:55.289 The main reason why you buy into a dividend stock 0:16:55.299 --> 0:16:58.530 is to buy the stability and the consistency of the 0:16:58.539 --> 0:17:01.929 underlying company, you will experience a lot less volatility in 0:17:01.940 --> 0:17:05.718 terms of price movements. So typically there is a huge plus, 0:17:05.729 --> 0:17:10.300 it is also providing a regular income for investors. Maybe 0:17:10.310 --> 0:17:13.949 people who are approaching retirement when you stop being able 0:17:13.959 --> 0:17:13.989 to 0:17:14.083 --> 0:17:17.953 exchange human capital for a salary and income, passive income 0:17:17.963 --> 0:17:21.953 becomes incredibly important. Dividend stock can play a very important 0:17:21.963 --> 0:17:24.863 role in terms of playing that passive income role alongside 0:17:24.874 --> 0:17:28.734 maybe fixed income coupon payments and rental, so and so forth. 0:17:28.744 --> 0:17:32.063 So dividend payout can also enhance the amount of money 0:17:32.073 --> 0:17:34.943 you have to spend on a monthly basis, extra pocket money, 0:17:34.953 --> 0:17:37.582 extra pocket money per se. So if you think about 0:17:37.593 --> 0:17:40.062 it as the world gets older and Singapore is getting 0:17:40.073 --> 0:17:40.822 very old, 0:17:40.959 --> 0:17:44.530 yes, that natural demand for companies with the ability to 0:17:44.540 --> 0:17:46.859 pay out income will rise to prominence. 0:17:46.869 --> 0:17:49.609 And I'll tell you what something else that will rise 0:17:49.619 --> 0:17:51.699 in the midst of all this, the pressure on these 0:17:51.709 --> 0:17:56.579 companies to stay healthy, to stay robust, maintain their ability 0:17:56.589 --> 0:17:57.760 to pay out those 0:17:57.770 --> 0:17:58.270 dividends, 0:17:58.280 --> 0:18:02.250 especially when times like this, when artificial intelligence is already 0:18:02.260 --> 0:18:04.619 disrupting a lot of these major industries. I 0:18:04.630 --> 0:18:04.938 mean, the 0:18:04.949 --> 0:18:07.540 rapid pace of it all, I think it's what's scaring 0:18:08.364 --> 0:18:10.853 because we fear that we may not be ready for it. 0:18:10.864 --> 0:18:15.083 Most companies have invested significantly in that area. But you 0:18:15.094 --> 0:18:18.314 are right because the pace of this evolution is really fast, 0:18:18.344 --> 0:18:20.754 many companies will find that they are unable to keep 0:18:20.765 --> 0:18:20.935 up. 0:18:20.944 --> 0:18:23.155 You talked about some of the upsides of having a 0:18:23.165 --> 0:18:26.494 dividend stock. What are the caveats though? What are the 0:18:26.505 --> 0:18:28.885 downsides that we need to take note of? 0:18:28.895 --> 0:18:31.764 So when you think about investing, there's always a certain 0:18:31.775 --> 0:18:34.574 amount of risk because ultimately buying into equity, 0:18:34.839 --> 0:18:38.719 you are at possibly the bottom of the repayment rack. 0:18:38.729 --> 0:18:43.349 For example, if company becomes insolvent, said company, the creditors 0:18:43.359 --> 0:18:46.579 of the company, the bond holders will get paid first, ok? 0:18:46.589 --> 0:18:49.438 If the debt structure is not too complex, maybe there 0:18:49.449 --> 0:18:52.780 will be some left for equity shareholder. But typically in 0:18:52.790 --> 0:18:56.380 this situation, a shareholder may not be getting very much back. 0:18:56.390 --> 0:18:59.989 Should the company become insolvent? Similarly, when you think about 0:19:00.000 --> 0:19:02.680 investing and I briefly touch about this point, if you're 0:19:02.689 --> 0:19:03.250 investing 0:19:03.353 --> 0:19:06.942 wholly into a dividend portfolio, buying all companies that pays 0:19:06.953 --> 0:19:08.483 a dividend, you tend to have a bit of a 0:19:08.493 --> 0:19:12.652 concentration risk to this point. The concentration risk is typified 0:19:12.662 --> 0:19:17.012 by companies that seem to operate in similar sectors. Ok. 0:19:17.022 --> 0:19:21.493 So typically companies found in the utility space, real estates, financials, 0:19:21.503 --> 0:19:24.593 these are companies that are very established, but it also 0:19:24.603 --> 0:19:27.753 means that you have a lot of your exposure into 0:19:27.762 --> 0:19:31.713 a very narrow sectorial allocation. OK. So if you had 0:19:31.885 --> 0:19:34.776 a portfolio and in the past two years, you would 0:19:34.786 --> 0:19:37.365 have lost out because if you think about it, the 0:19:37.375 --> 0:19:40.526 magnificent seven that A I leaders of the world were 0:19:40.536 --> 0:19:43.416 the top performers. You would have missed out in that 0:19:43.426 --> 0:19:48.345 gain by just purely focusing on a dividend defensive only 0:19:48.355 --> 0:19:48.845 strategy 0:19:48.855 --> 0:19:52.765 understood. So diversification still the best advice out there for 0:19:52.776 --> 0:19:57.436 investors extremely so able, ultimately, who should have a dividend 0:19:57.446 --> 0:19:59.845 stock in their portfolio? Everyone. 0:20:01.280 --> 0:20:03.900 That's a great sell. I have to say Abel, it's 0:20:03.910 --> 0:20:05.790 been a pleasure. Thank you for being on the show 0:20:05.800 --> 0:20:09.209