Dividend Income: Now or Later?

Recently, people have been blogging about dividend income and I thought I should air my opinion about it as well! I have begun my dividend income investing for about a year now and have been really happy with it. My portfolio yields at 8% and I must say I’m very satisfied with what I have. 

Every now and then, I stop to think. Should I increase my position or wait for a major correction before I take action? Afterall, the bull run has been going on for awhile now. I thought about the scenarios that I would take in the event of a crash. 

What I would do in a crash:

  1. Reduce position and take profits off the table first before re-entering for higher yield .
  2. Average down while collecting dividends. 

Honestly, I have yet to come to a decision on the actions I would take. I might be tempted to go for option 1 because I still do not have a stable source of ordinary income in the next 3 years when I am studying. Being limited on capital means that I have to utilize whatever I have efficiently. If I choose option 1, I prevent the erosion of my capital. Option 2 would be viable for me if I have a source of ordinary income substantial enough to keep adding into my positions. 

My goal is still to have double digit yields, isn’t that a nice goal to have? 🙂 Feel free to leave a comment if you have a plan for people who are limited in capital with no other significant source of income like myself. 

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14 thoughts on “Dividend Income: Now or Later?

  1. Hi Aloy

    You mentioned that you were going to with option 1 during a crash.

    I am baffled though how would you know whether the market is going to a crash, recession or secular bear market? Would you be in time to cash them out and wait for a better opportunity?

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    1. Hi B,
      I was thinking along the lines where my shares which is normally resilient to market movements decides to change into a downtrend or show multiple signs of weakness in share price. Can’t be certain if I will be able to cash out in time but certainly will mitigate my damages if it indeed does happen.
      Do you feel Option 2 might have been a better choice though?

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    1. Hi Richard,
      I looked at your post and was surprised by the $0 fees offered by KE! Rather than averaging at every point of the market, I feel that it’s better to selectively pick at what I feel is the “bottom”. Although that comes at a price of $18-25 every time I average!

      Like

  2. Hello Aloy,

    Nice blog you’ve here!
    Coming from myself, who have limited capital too, I recommend saving up first and study loads on the foundations of getting into the millionaire street. Personal Finance, Value investing, Dividends investing, Index investing, maybe some other ‘riskier’ investments such as FOREX, Binary options, start-ups etc.
    Age is our advantage here that money can’t buy! So don’t be afraid to step out of your comfort zone!! If you are not sure if you’re comfortable now, I can tell you that you are. HAHAH!
    Btw you can hit me up at the email address with this post. Let’s learn more from one another yea? 😉

    Regards,
    The Independent Abecedarian
    A friend of the same age

    Liked by 1 person

  3. Hi Aloy,

    my first thought is how do u define crash (20%? 50%?). choosing option 1 after the crash would already mean erosion of capital. i’m guessing, your intention for option 1 or 2 is for now. second thought is that quantum is still relatively low, therefore i feel won’t make much difference whether you go with option 1 or 2.

    i suggest the following as more important priorities for someone your age:
    investing in yourself – keep abreast with latest news and developments, read broadly, learn new skills.
    network – get to know more people especially people in fields you are interested in.
    spend time with family – life is unpredictable. friends may come and go, family is for life.

    Cheers
    KopiO

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    1. Hi KopiO,
      Thanks for leaving your maiden comment here! Yes you got that right, it’s for now although option 2 would be to hold on a bite the bullet while building up capital to average down the cost.
      Thanks for the suggestions, I’ve been investing in myself and networking, but you also reminded me that I’m not spending enough time with my family. I really can’t wait to get back home in Singapore and spend time with them. I forgotten that as I’m growing older, so are my parents.. Thanks KopiO!

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  4. Personally it all boils down to valuation…. If the PE is like above 20, it will be prudent to start trimming your position. If PE is above 25, you better watch out. ;p

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  5. Usually buying below PE<15 is reasonable, PE < 10 is probably great. But there are plenty of stocks that trade PE<10 for very very long time and never seems to rise above it.

    Hence I suggest you add some additional filter like Total debt/equity ratio < 100%, Price/book ratio 2.5% with long and uninterrupted record giving out dividend yearly (at least 5 yr). Most people, me included, don’t have to conviction to hold on to undervalued stock for years unless they give out dividend regularly.

    This might exclude growth stock but the portfolio usually have much lesser downside too.

    Stocks like Hong Kong Land, Wing Tai, Ho Bee, IPC corp, Metro holdings are just a few such examples such stocks

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  6. Repost

    Usually buying below PE<15 is reasonable, PE < 10 is probably great. But there are plenty of stocks that trade PE<10 for very very long time and never seems to rise above it.

    Hence I suggest you add some additional filter like Total debt/equity ratio < 100%, Price/book ratio 2.5% with long and uninterrupted record giving out dividend yearly (at least 5 yr). Most people, me included, don’t have to conviction to hold on to undervalued stock for years unless they give out dividend regularly.

    This might exclude growth stock but the portfolio usually have much lesser downside too.

    Stocks like Hong Kong Land, Wing Tai, Ho Bee, IPC corp, Metro holdings are just a few such examples such stocks

    Like

  7. Eh… sorry to spam but there seem to be some problem with posting..

    Adding to what was missing.

    Price/book ratio 2.5% with long and uninterrupted record giving out dividend yearly (at least 5 yr).

    Like

    1. Hi Andy,
      Thanks for taking the time to share! I too am using the same few criteria when selecting stock less P/E ratio for now. Like yourself, I don’t have much conviction to hold onto stocks unless they have great potential or consistent dividend. 🙂

      Like

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