1. It is not recommended to invest for the sake of dividends
I am not in favour of investing for the sake of dividends. I am not saying that we should not invest in stock that pays dividend. However, if the objective of the investment is solely to receive dividends, I am against this kind of objective.
I am always a believer in investing in a diversified portfolio. However, to be invested in a portfolio of 100% dividend paying stocks is not being diversified.
When a stock has high dividend payout ratio, there must be only one reason. The reason is because the company does not have any business expansion projects and as well as research & development projects to spend on. That is to say that the CEO of the company does not know what to do with the money.
2. A high dividend payout ratio stock is a dying company
What kind of company that has no business expansion projects and what kind of company that does not have any R&D? It is a company that has no future.
Imagine you are driving on the road and you just stop your car. You will find that all other cars are moving forward. However, relative to other cars, you are moving backwards.
Companies that pay all their dividends to their shareholders is because they have no project to spend on. Such companies are “stationary”. However, since their competitors are moving forward, such companies are actually moving backwards. That is to say that these companies are declining.
That is why in Singapore, many so called high dividend paying stocks have declined. Some have already gone bankrupt.
3. It is recommended to invest in a diversified investment portfolio.
If you invest in a diversified portfolio of stocks and bonds and if you do need the money for retirement, you can always sell some of your securities. These days, transaction costs are very low.
If you wish to speak to me on how to construct a diversified portfolio, feel free to reach out to me at the contact link of this page.
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