3 Dividend Pitfalls for Dividend Seeking Investors

There is nothing wrong with investing in dividend stocks to generate passive income for your retirement planning. However, it will cause a huge dent in your retirement portfolio if you are investing wrongly. The following are the 3 dividend pitfalls that you have to avoid.

Pitfall No 1: High Dividend Yield is Lagging

Everyone wants to invest in shares which give high dividend yield. It is a no-brainer to choose Share A with a 10% dividend yield over Share B with a 4% dividend yield. However, investors need to be very careful when investing in shares with high dividend yield because ‘dividend yield’ is a lagging number. The high yield could be caused by a sharp drop in the current stock price due to weakening of the fundamentals or poor forward-earning guidance. Investing in such shares may instead cause investors to lose part of the capital invested and receive reduced dividend in the future.

dividend yield - financial alliance

Pitfall No 2: Dividend Pay-out Ratio is Not Guaranteed

There is no guarantee that the underlying shares will continue to pay dividend. The management can change the dividend pay-out ratio due to the company’s profit & loss position, cash flow situation, future expansion considerations and other reasons. Thus, the dividend from Real Estate Investment Trust (“REIT”) is more predictable compared to normal shares, because a REIT must distribute at least 90% of its taxable income to shareholders.

Pitfall No 3: Dividend Pay-out from Capital

Most investors do not read the fine print in the fact sheet before signing the agreement. Quite a number of mutual funds or unit trusts have the flexibility to pay dividend from capital when there is a need to. Such a dividend-paying practice is akin to you paying yourself dividend from your own bank account.

Nowadays, there are many advertisements promoting various investment products which give high dividends to generate passive income for your retirement planning. However, it is very important to pay attention to the above 3 dividend traps before you invest your hard-earned money. Ensure that you consider the above 3 factors, ask questions and get a satisfactory answer before signing any agreement. Alternatively, get a qualified and experienced investment advisor’s help in building your investment portfolio to minimise costly mistakes that may plague you later on.

 

Kenny Loh is a Senior Consultant at Financial Alliance, the largest Independent Financial Advisor in Singapore. He has won 4 Awards in 2017, Financial Alliance Quality Class Merit Award, Top 5 Investment Asset Under Advice (AUA) Award, Rookie Consultant of the Year Award and Best Practice Consultant Award. Visit his personal profile here:https://fa.com.sg/kennyloh/

Singapore REIT Bubble Charts August 2019

Bubble charts derived from Aug 12, 2019 Singapore REITs Fundamental Comparison Table. No significant changes compared to last Bubble Charts.

(1) Big cap REIT remains expensive and value picks remains at small and medium cap REIT. Some small cap REITs start to move. Note: Distribution yield is lagging.

(2) There are no significant changes in gearing ratio.

 

These Bubble Charts are used to show the “relative” position compare to other Singapore REITs.

Two visual bubble charts to pick and avoid:

  1. Undervalue Singapore REITs with High Distribution Yield** (Value Pick)
  2. Overvalue Singapore REITs with High Gearing Ratio (Risk Avoidance)

** Distribution Yield are lagging.

Compared to previous Singapore REIT Bubble Charts here.

 

Disclaimer: The analysis is for Author own use and NOT to be used as Buy / Sell recommendation. Get a proper training on “How to use this Singapore REIT Bubble Charts?” here.

Singapore REIT Price / NAV Range Chart August-2019

Singapore REIT Price / NAV Range Chart base on Aug 12, 2019 Singapore REITs Table.

See last Singapore REITs Price/NAV here to see the changes.

Disclaimer: This chart is NOT a recommendation to buy or sell. Do NOT use it if you don’t understand how to interpret it.

 

You can catch me at the coming Invest Fair 2019 as I will be sharing how to use this Price/NAV chart to spot buying opportunities for Singapore REITs.  You can check out the registration detail here. Kenny Loh @ InvestFair2019

 

 

Check below on other events:

http://mystocksinvesting.com/course/singapore-reits-investing/REITs Investing Course 

http://mystocksinvesting.com/course/private-portfolio-review/REITs Portfolio Advisory 

http://mystocksinvesting.com/events/