Speaker 1: You're listening to AC N A podcast.
Speaker 1: Hey, hey, everyone. It's Andrea Heng here on the Money
Speaker 1: Talks podcast with your weekly dose of advice on personal finance. Now,
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Speaker 1: new episode drops. Now, I have my producer, Juani here
Speaker 1: with me today so I am going to get her
Speaker 1: to quickly give me the top financial headlines this week.
Speaker 1: Take it away, June, Andrea Heng. Yes. Are you a Boomer?
Speaker 1: How dare you ask me this question? No, I am not.
Speaker 1: I'm just kidding. Yes, I know you're not.
Speaker 1: But anyway, this just in baby boomers here in Singapore
Speaker 1: are worried. Oh, why? According to a Euromonitor International survey
Speaker 1: conducted early this year, about only 55% of the baby
Speaker 1: boomers are comfortable with their financial situation in 2023
Speaker 1: and they are generally pessimistic about their personal finances. In fact,
Speaker 1: about 26% believe that the situation will get worse. Oh,
Speaker 1: my goodness. That's not very good. You can't blame them though. Right.
Speaker 1: Because not only are the Boomers living longer but their
Speaker 1: parents are also living longer. So, cost of living is
Speaker 1: also perpetually on the rise. That's right. And that's why
Speaker 1: Boomers are more careful when it comes to the spending.
Speaker 1: They are also spending more on health goods and medical services.
Speaker 1: Which understandable and also on education. Oh, that's good. Yay.
Speaker 1: For upskilling. Interesting. All right. What's next? All hot Chris.
Speaker 1: What is the hottest company in the world right now? Oh, wow. Ok.
Speaker 1: I know it's not Apple anymore. It's NVIDIA. That's right.
Speaker 1: It's been constantly in the news recently first for taking
Speaker 1: over Apple and Microsoft to become the world's most valuable
Speaker 1: company, but only for a short while. So NVIDIA makes chips. Well,
Speaker 1: not the kind that we like to eat, but the
Speaker 1: ones that are really important. Ok. They are the chips
Speaker 1: that power, the oncoming A I tsunami, which is why
Speaker 1: everyone is asking how can I get a piece of NVIDIA.
Speaker 1: So that's the interesting thing. So the company's stock has
Speaker 1: been on a crazy climb according to Forbes. If you
Speaker 1: invested $10,000 in the company five years ago,
Speaker 1: that would be worth $345,000 today. My goodness. But at
Speaker 1: the time of this recording things are looking a little
Speaker 1: less rosy. Ok. So you're telling me there's a bit
Speaker 1: of bad news on the front, the stock plunge that's
Speaker 1: my guess correct. OK. That's why you're the journalist, the
Speaker 1: stock has gone down 13% from its peak losing more
Speaker 1: than 500 billion
Speaker 1: in US dollars in market value. Ok. So then the
Speaker 1: big golden question is, what will this mean for investors
Speaker 1: of NVIDIA? Naturally, they will be a lot more cautious now, right?
Speaker 1: But one thing is for sure, even though this tech
Speaker 1: darling has now moved down to the pecking order to
Speaker 1: number three, the story isn't quite over yet. I'm sure
Speaker 1: I agree here's to looking forward to more NVIDIA stories.
Speaker 1: So you like a particular company, you find its value agreeable.
Speaker 1: You know, you like what it does, who its founder
Speaker 1: or CEO is or maybe you just like the logo,
Speaker 1: no harm in that. And perhaps you like it so
Speaker 1: much that you want to own a piece of it.
Speaker 1: One of the most common ways is to become a
Speaker 1: shareholder and buy the company stock.
Speaker 1: But can you only get a piece of a publicly
Speaker 1: listed company? And how do you go about owning a
Speaker 1: piece of that company? Let's ask Abel Lim, he is
Speaker 1: head of Wealth Management Advisory and strategy at UOB. Welcome
Speaker 1: to Money talks.
Speaker 2: Thank you very much for the privilege of being here.
Speaker 1: It
Speaker 1: is absolutely my pleasure. So as a start, give us
Speaker 1: the sharper summary of what a dividend stock
Speaker 1: is.
Speaker 2: That's actually a really good question.
Speaker 2: So when you buy into a company, you're buying an
Speaker 2: equity of that company, the future earnings of that company,
Speaker 2: that's when you become an equity holder in that company.
Speaker 2: So the typical process of identifying a equity still persists.
Speaker 2: So in other words, you either have a top down approach,
Speaker 2: looking at the macros, looking at the industry that is
Speaker 2: participating in and why you should be buying into that company.
Speaker 2: Because you believe in the growth of that company. Conversely,
Speaker 2: there's an alternate view which
Speaker 2: the bottom up approach, just looking at the company identifying
Speaker 2: its growth potential, its ability to deliver alpha or earnings
Speaker 2: for its shareholders and the sectors that is competing in.
Speaker 2: So you look at those companies, so those things don't
Speaker 2: change because you're buying into an equity of that company
Speaker 2: right now, your question was what is a dividend stock?
Speaker 2: So the typical characteristic of a dividend stock is by
Speaker 2: and large, a more mature company, a company that has
Speaker 2: been around for a while, owns the greater part of
Speaker 2: the industry that they are competing in,
Speaker 1: right? And
Speaker 1: when you say mature, how old would this company be? Roughly,
Speaker 2: it varies in terms of industry. So the industry like
Speaker 2: the financial industry, typically you are talking north of 50 years,
Speaker 2: brick and mortar company who have been around, have weather
Speaker 2: through many crisis and market volatilities. This company tends to
Speaker 2: be a lot more stable, a lot better govern better rent.
Speaker 2: So these companies are considered mature, right? So typically when
Speaker 2: these companies are already mature, they do not need to
Speaker 2: have to reinvest every single profit back into the business
Speaker 2: to grow. So essentially, now they have excess cash flow
Speaker 2: and they need to be profitable. Otherwise you have no
Speaker 2: money to pay out, right? So they need to be
Speaker 2: profitable and they have excess cash. That's when they decide
Speaker 2: to pay out a dividend.
Speaker 1: Ah
Speaker 1: ok. So that's why
Speaker 1: the more mature or perhaps the more established the company,
Speaker 1: the better the dividend yield is, would that be the
Speaker 1: correct description?
Speaker 2: Actually? Again, it depends the
Speaker 1: company's performance as well.
Speaker 2: The
Speaker 2: right way to think about it is you want to
Speaker 2: have a company that pays a consistent and a stable
Speaker 2: dividend as opposed to a company that swings wildly in
Speaker 2: terms of its dividend payoff because this can be for
Speaker 2: one detrimental for long term planning.
Speaker 2: Secondly, in terms of expectations, some companies pay very high dividends,
Speaker 2: but you got to understand why is it paying very
Speaker 2: high dividends? Is it because it's truly growing, it's extremely
Speaker 2: profitable and hence paying dividends or is it just paying
Speaker 2: dividends out of cash flow?
Speaker 1: Ah,
Speaker 1: understood. Ok. That's a really good caveat to have and
Speaker 1: to keep in mind. So thank you for that. So
Speaker 1: let me put it this way. As long as I
Speaker 1: have money, can I just go and buy a dividend stock?
Speaker 2: Yes, you can. As long as you have the money
Speaker 2: to participate in these markets. Anyone can participate and go
Speaker 2: to a brokerage. Of course, there are certain age limits
Speaker 2: in Singapore before you can invest into our company. But
Speaker 2: essentially you need to understand the fees and the costs within,
Speaker 2: for example, buying into a share, there's a brokerage fee,
Speaker 2: there's custodian fee if you're buying into a foreign share,
Speaker 2: for example, there's withholding tax that you need to factor
Speaker 2: into your overall returns. Fortunately,
Speaker 2: for us, Singaporeans, we don't have reporting tax. So that's
Speaker 2: one of the key benefits. Why foreign investors like to
Speaker 2: buy a dividend stock in Singapore?
Speaker 1: Understood. Ok. Now I understand why Singapore is such an
Speaker 1: appealing place for them to go and buy dividend stocks.
Speaker 1: So one of the biggest barriers to any new investment
Speaker 1: product is where do we begin? So first, how do
Speaker 1: I know which
Speaker 1: ones to buy
Speaker 2: when it comes to making an investment thesis? You need
Speaker 2: to have
Speaker 2: the right risk appetite for that particular investment vehicle that
Speaker 2: you have chosen by and large. For the first time,
Speaker 2: I would recommend going into an ETF or a mutual
Speaker 2: fund because that's possibly the easiest and possibly even the
Speaker 2: cheapest way for you to participate in the market. Most
Speaker 2: funds has a low minimum threshold of 500 to start with.
Speaker 2: And then you can have regular investment plan that allows
Speaker 2: you to build on your investment and capital in the
Speaker 2: long run.
Speaker 2: The other benefit in a fund is that it's highly diversified.
Speaker 2: You don't have a concentration risk into one particular company,
Speaker 2: but to maybe access to 50 companies with very attractive dividends,
Speaker 2: not just locally but across different sectors and even globally.
Speaker 2: So that in itself is extremely attractive, but of course,
Speaker 2: that comes with a management fee, right?
Speaker 1: So talk to me about
Speaker 1: that.
Speaker 2: Ok, so when it comes to management fee, you will
Speaker 2: want to learn,
Speaker 2: look at the total expense ratio te of a company
Speaker 2: of underlying fund. So that takes into consideration the management fee,
Speaker 2: custodians fee and transactional fee. For example, basically it's like
Speaker 2: a service charge, it's a service charge. Yeah. So typically
Speaker 2: once you factor that in, that should be part and
Speaker 2: parcel of your investment decision. Now if you have more ammunition,
Speaker 2: higher risk profile and you want to express a view,
Speaker 2: for example, your view
Speaker 2: is that rates are going to stay very high. Financial
Speaker 2: institutions will do extremely well because of a net interest margin.
Speaker 2: You may want to participate into a bank that pays
Speaker 2: very attractive dividend. But bear in mind you're holding a
Speaker 2: single equity, a single name and I'm not saying it
Speaker 2: will happen, but many things can happen when you have
Speaker 2: such concentration. Anything
Speaker 1: can happen. Basically, it's putting all your eggs in one
Speaker 1: basket versus spreading it out.
Speaker 1: Ok. So what is it that makes a good dividend
Speaker 1: stock?
Speaker 2: Ok, typically, and I've touched on this earlier, these companies
Speaker 2: are mature, they have already added a lot of the
Speaker 2: volatility which the industry that they are still participating in
Speaker 2: have already trans. So a lot of this company have
Speaker 2: a well-established business, very well run govern at the same
Speaker 2: time and with very clear business models and it's identifiable who,
Speaker 2: where most of their income streams come
Speaker 2: from.
Speaker 1: So it's very tried and tested,
Speaker 2: tried and tested and also the fact that many of
Speaker 2: the risk has already been factored in or has been experienced.
Speaker 2: So they know how to manage some of this long
Speaker 2: term risk. So a lot of these companies again belonging
Speaker 2: to the blue chip space and widely recognized, not only
Speaker 2: in the domestic market but on a global stage,
Speaker 1: right? And
Speaker 1: it makes me think about all the various companies that
Speaker 1: were
Speaker 1: mostly watched and scrutinized during COVID, a lot of aviation companies,
Speaker 1: for example, a lot of construction companies during COVID, some
Speaker 1: of these companies had cash infused in those situations. How
Speaker 1: are shareholders affected them because then that cash that you
Speaker 1: talked about, right, that extra profit that typically goes to
Speaker 1: us as dividend payouts to investors. What happens to
Speaker 1: that when that cash has to be used for an
Speaker 1: emergency like
Speaker 1: COVID?
Speaker 2: Excellent question. Now COVID was a exceptional time, not only
Speaker 2: for us but for any company that's operating around the world,
Speaker 2: but more importantly, the survivability of the company really does
Speaker 2: require the company to be able to evolve and be
Speaker 2: able to adapt to the COVID situation. Airlines for example,
Speaker 2: had a really tough time because no one was flying,
Speaker 2: no one is allowed to fly their revenue stream totally
Speaker 2: grounded to a halt. So in the absence of which
Speaker 2: they actually focus a lot of their efforts towards the
Speaker 2: commercial side which is transportation of goods pivoting, it was
Speaker 2: pivoting and they managed to at least account for some
Speaker 2: of the revenue stream. So typically in periods of stress,
Speaker 2: like such companies will tend not to be
Speaker 2: so generous in terms of their dividend payout because they
Speaker 2: need to ensure that they are sufficient cash flow to
Speaker 2: ensure the company survives during such difficult times. So obviously,
Speaker 2: you won't see an extravagant dividend announcement. Conversely when the
Speaker 2: markets are doing very well and the industry has picked
Speaker 2: up on there's exceptional profits. You will see companies like
Speaker 2: such announcing an exceptional dividend and a little bit extra
Speaker 2: to reward shareholders, investors for being loyal to them, holding
Speaker 2: their equities and staying with them during difficult times
Speaker 1: when it comes to the shareholders sentiment, wouldn't that make
Speaker 1: the company sort of beholden
Speaker 1: to their shareholders to their investors? Because if I'm not
Speaker 1: getting a dividend this year, what makes me think I'm
Speaker 1: going to get it next year or in the future,
Speaker 1: even if the company is long established and has had
Speaker 1: those tried and tested moments.
Speaker 2: So typically, when an investor buys into a company, there
Speaker 2: are two reasons particularly in a dividend stock, one, they
Speaker 2: want to buy it for the dividend yield which you articulated.
Speaker 2: So in terms of stress, they may not
Speaker 2: be getting a dividend. But if you look at the
Speaker 2: historical track record of the said company with a very
Speaker 2: stable and regular dividend payout, this does suggest that when
Speaker 2: things normalizes the company is capable of paying a similar
Speaker 2: or even better dividend in the future. The other thing
Speaker 2: is that when you buy into a share in equity,
Speaker 2: you're also looking for capital appreciation. What's capital appreciation price movement?
Speaker 2: Ie by low
Speaker 2: sell high, that's the best way to make money in
Speaker 2: the market, actually the best way, the best way. So
Speaker 2: in terms of stress, again, company stock price will come
Speaker 2: down because of the uncertainties, market sentiments are poor. People
Speaker 2: tend to sell down the share because maybe they are
Speaker 2: not so confident about the company's profitability during that period
Speaker 2: or maybe in the future. Now, conversely, investors with the
Speaker 2: rigged appetite will actually see this is an opportunity
Speaker 2: I really should get myself into this share or this
Speaker 2: name because I think in the long term, not only
Speaker 2: will this company survive this current episode, it will thrive
Speaker 2: and do a lot better post episode and I will
Speaker 2: be in the money. So capital decision by low sell high.
Speaker 2: So
Speaker 1: essentially the history of the company's performance and the opportunity
Speaker 1: for capital appreciation. These are the things that dividend investors
Speaker 1: would like to look out for. So when I invest
Speaker 1: in a dividend stock, I would
Speaker 1: expect some returns. So when is payday for dividend investors
Speaker 1: and how are they paid out? Ok.
Speaker 2: It varies again from company to company, industry to industry
Speaker 2: as well. So dividends can come in the form of quarterly,
Speaker 2: half annually or even annually. So it really depends on
Speaker 2: the board of directors within the said company and their
Speaker 2: normal practices. So typically we see companies actually pay out
Speaker 2: on an annual basis and this money paid out in
Speaker 2: various
Speaker 2: form, it can be a in the form of cash.
Speaker 2: So it's a direct credit into your account. Conversely, you
Speaker 2: can be paid via more shares, ok? And if you're
Speaker 2: paid more shares, you can either a sell those shares
Speaker 2: for money or for the long term investor reinvest it.
Speaker 2: So the best way if you have a long term horizon,
Speaker 2: reinvest the money because the moment you reinvest the money,
Speaker 2: you actually invoke the eighth wonder of the world, the
Speaker 1: eighth wonder of the world.
Speaker 1: Tell me more.
Speaker 2: The eighth wonder of the world is a power of compounding.
Speaker 2: So when you reinvest your money, you reinvest the share
Speaker 2: into the company, you create two streams of income, the
Speaker 2: natural income, which is the dividend payout. But because of
Speaker 2: the fact that you are reinvesting it, you're earning interest
Speaker 2: upon the interest or dividend upon dividend.
Speaker 1: Ok? So it's really a good strategy to have it
Speaker 1: stacked on to each other so that you're just maximizing
Speaker 1: really your return
Speaker 1: optimizing
Speaker 2: for sure.
Speaker 1: Yeah. Yeah. Ok. So can a company decide to cut
Speaker 1: dividends and in some cases not even pay out at all?
Speaker 2: Yes, a company can do that. It's within their jurisdiction.
Speaker 2: But typically when a company chooses to dial down or
Speaker 2: to cut dividend, it's usually a pretty bad sign that
Speaker 2: the company isn't performing particularly as well. There are certain
Speaker 2: challenges that they are gathering sufficient ammunition to meet
Speaker 2: and these are typically not ideal situation for a company
Speaker 2: to be in. So the news that goes out into
Speaker 2: the industry or to the markets tend to be pretty
Speaker 2: negative when a company does cut or stop dividends. That
Speaker 2: is also one of the reasons why a lot of
Speaker 2: these dividends are more dud in the onset so that
Speaker 2: it doesn't send out the wrong signal,
Speaker 1: ah, understood. So there's a lot of care that goes
Speaker 1: into sort of looking after what comes out of the company,
Speaker 1: be it dividends, be
Speaker 1: news, be it crises or even good news. There has
Speaker 1: to be a measure to everything. How often does such
Speaker 1: crises happen to established companies to the point where they decide? Ok,
Speaker 1: we need to cut the dividend and not pay you
Speaker 1: at all. How often does this happen
Speaker 2: for very established businesses? Surprisingly, it's not very often. In fact,
Speaker 2: most of this company usually have some layer of additional
Speaker 2: fats
Speaker 2: or cash reserve that still there to pay out as
Speaker 2: form of dividend.
Speaker 1: So enough of the doomsday talk, tell us what's the
Speaker 1: biggest benefit of owning a dividend
Speaker 1: stock.
Speaker 2: There are many benefits when it comes to
Speaker 2: holding a dividend stock, but I do want about a
Speaker 2: pure dividend portfolio, but I might come to that later.
Speaker 2: The main reason why you buy into a dividend stock
Speaker 2: is to buy the stability and the consistency of the
Speaker 2: underlying company, you will experience a lot less volatility in
Speaker 2: terms of price movements. So typically there is a huge plus,
Speaker 2: it is also providing a regular income for investors. Maybe
Speaker 2: people who are approaching retirement when you stop being able
Speaker 2: to
Speaker 2: exchange human capital for a salary and income, passive income
Speaker 2: becomes incredibly important. Dividend stock can play a very important
Speaker 2: role in terms of playing that passive income role alongside
Speaker 2: maybe fixed income coupon payments and rental, so and so forth.
Speaker 2: So dividend payout can also enhance the amount of money
Speaker 2: you have to spend on a monthly basis, extra pocket money,
Speaker 2: extra pocket money per se. So if you think about
Speaker 2: it as the world gets older and Singapore is getting
Speaker 2: very old,
Speaker 2: yes, that natural demand for companies with the ability to
Speaker 2: pay out income will rise to prominence.
Speaker 1: And I'll tell you what something else that will rise
Speaker 1: in the midst of all this, the pressure on these
Speaker 1: companies to stay healthy, to stay robust, maintain their ability
Speaker 1: to pay out those
Speaker 1: dividends,
Speaker 2: especially when times like this, when artificial intelligence is already
Speaker 2: disrupting a lot of these major industries. I
Speaker 1: mean, the
Speaker 1: rapid pace of it all, I think it's what's scaring
Speaker 1: because we fear that we may not be ready for it.
Speaker 2: Most companies have invested significantly in that area. But you
Speaker 2: are right because the pace of this evolution is really fast,
Speaker 2: many companies will find that they are unable to keep
Speaker 2: up.
Speaker 1: You talked about some of the upsides of having a
Speaker 1: dividend stock. What are the caveats though? What are the
Speaker 1: downsides that we need to take note of?
Speaker 2: So when you think about investing, there's always a certain
Speaker 2: amount of risk because ultimately buying into equity,
Speaker 2: you are at possibly the bottom of the repayment rack.
Speaker 2: For example, if company becomes insolvent, said company, the creditors
Speaker 2: of the company, the bond holders will get paid first, ok?
Speaker 2: If the debt structure is not too complex, maybe there
Speaker 2: will be some left for equity shareholder. But typically in
Speaker 2: this situation, a shareholder may not be getting very much back.
Speaker 2: Should the company become insolvent? Similarly, when you think about
Speaker 2: investing and I briefly touch about this point, if you're
Speaker 2: investing
Speaker 2: wholly into a dividend portfolio, buying all companies that pays
Speaker 2: a dividend, you tend to have a bit of a
Speaker 2: concentration risk to this point. The concentration risk is typified
Speaker 2: by companies that seem to operate in similar sectors. Ok.
Speaker 2: So typically companies found in the utility space, real estates, financials,
Speaker 2: these are companies that are very established, but it also
Speaker 2: means that you have a lot of your exposure into
Speaker 2: a very narrow sectorial allocation. OK. So if you had
Speaker 2: a portfolio and in the past two years, you would
Speaker 2: have lost out because if you think about it, the
Speaker 2: magnificent seven that A I leaders of the world were
Speaker 2: the top performers. You would have missed out in that
Speaker 2: gain by just purely focusing on a dividend defensive only
Speaker 2: strategy
Speaker 1: understood. So diversification still the best advice out there for
Speaker 1: investors extremely so able, ultimately, who should have a dividend
Speaker 1: stock in their portfolio? Everyone.
Speaker 1: That's a great sell. I have to say Abel, it's
Speaker 1: been a pleasure. Thank you for being on the show
Speaker 1: and helping us understand the basics, the building blocks of
Speaker 1: dividend stocks and knowing the right questions really to ask
Speaker 1: ourselves before we decide to plunge into the world of
Speaker 1: dividend stocks. And I'm very sure that your advice will
Speaker 1: come in handy. So thank you so
Speaker 1: much.
Speaker 2: The pleasure is all mine.
Speaker 1: All right. So before we let you go, we have
Speaker 1: a segment called questions from a hat. Just pick one
Speaker 1: hand it over to me and I will read it out.
Speaker 1: So, Abel, if you could have a meal with any
Speaker 1: public figure dead or alive, who would it be and
Speaker 1: why?
Speaker 2: Oh, ok. Wow, that's simple. The founder of our country.
Speaker 2: Mr Lee Kuan Yew. I have tremendous respect for this individual,
Speaker 2: how he has turned a third world city into a
Speaker 2: first class nation.
Speaker 2: There's a lot to be thankful about today. The learnings
Speaker 2: that he said the trials and tribulations that he has
Speaker 2: to go through during the difficult period. I know many
Speaker 2: people also disagree with the way he got about doing things.
Speaker 2: But you can't please everybody, you can't please everybody. There's
Speaker 2: no right or wrong because everyone was still feeling around
Speaker 2: and trying to get things right. So I have tremendous
Speaker 2: respect for Mr Lee. And then he has been a
Speaker 2: role model in terms of how I look at things
Speaker 2: and how I
Speaker 2: deal with life.
Speaker 1: He
Speaker 1: was a formidable figure and you could even argue still
Speaker 1: is a formidable figure today. Now, listener, if you have
Speaker 1: been thinking about dividend investing, I hope this episode has
Speaker 1: been a comprehensive yet very easy to follow, guide to
Speaker 1: understanding the basics. Got a question or comment about this episode. Hey,
Speaker 1: send us a message. Money Talks is streaming on
Speaker 1: Apple podcasts, Spotify and youtube music. Rate us please. If
Speaker 1: you are enjoying the podcast credits to the Money Talks team.
Speaker 1: Of course, Christina Robert Tiffany, Ang Jaini, Johari, Joan Chan
Speaker 1: and Tsai Yu. I'm Andrea Heng. Thank you for listening
Speaker 1: to Money Talks.