Be a Dividend Investor

A dividend investors goal should be to generate a increasing stream of sustainanle dividend income, through careful selection of dividend growth stocks. Their investment plan must not be dependant on daily market fluctuations. I am not being overconfident but a dividend investor must be able to say confidently that "daily fluctuations have no bearing on my investment plan" because i have bought this stock at a great discount and will keep building on it for the next 10 or 20 years (through 2-3 market cycles). 

Dividend investors out there, do not worry because most of your stocks will keep sending you dividends quarterly or annually (as long as the company is well managed, increasing in profitability year after year. What is most important is to focus on quality dividend stocks and purchase them at attractive valuations. In Singapore's short history, there are very few stocks that i can think of which have actually raised their distributions for at least ten consequtive years and may continue to do so for the next ten years. 
Companies like Singtel pay out dividends regularly, and it has increased over the past 11 years. They actually are a bit unpredictible because in 2003 and 2009, there was no increase. While on some years, you would get Special dividends, which is awesome. 
Take away the special dividends and other distributions and just look at Interim/Final dividends over the last 11 years and take the average:

2002 >>> 2013
5.5c >>>> 16.8c (dividends increased average 10.8% annually)
Which is not bad right?

As dividend investors, we should try and avoid unpredictability. I firmly believe that a strong management team which focuses on consistently sharing a portion of the profits with investors in the form of dividends will continue doing so, as long as the business is able to support it. Dividend Ranking website is pretty good to do the research on dividend history:
http://www.dividendsranking.com/index.php

I pulled this one for KeppelCorp from the above website:

There are of course another part of the dividend equation. In Singapore you can invest in REITs or Business trusts which promise you regular dividends (90% payout for REITs). But REITs  are not the same as company stocks. They did not promise an increase in dividends over time, just that 90% of the profits will be payed out, which means if they profit less in the particular year, you get less. Obviously. So there is the risk of unpredictability.

You know i wish investing in dividend stocks could be so easy that you can just buy it  and close your eyes. But you cant do that. Investors need to periodically monitor the financial health of their stocks. It should not be very complicated once you have done initial background research on the business and shareholding structure. Fundamentals of the company do not change overnight. Singtel will most likely be in the telecom business the next 10 or 20 years. Keep an eye out for news related to the particular stock such as mergers and acquisitions, that could prove very profitable or spell disaster in the making.

The bottom line is this: Market fluctuations should not scare intelligent dividend investors, instead it should be used as opportunities to build on your portfolio or trim off some profit. Steep drop in prices for dividend paying stocks provide excellent entry points for long term wealth accumulation. Personal note, Watch out for these in the next crash: Singtel, Singpost KeppelCorp, Jardine related stocks or if interested overseas, Coca cola; Colgate; Procter & Gamble; Exxonmobil; Kimberly Clark; Unilever; Merck & Co; Sanofi Aventis; Eli Lilly; Johnson & Johnson. If you noticed, Healthcare stocks have pretty good dividend payout rates but they are slow growth stocks.  

Is it time move into Healthcare sector?

If you recall my previous post, i estimate we are somewhere between a late stock market bull and peak of economic cycle. The chart recommends moving into consumer non-cyclicals and healthcare stocks. I am certainly more positive about consumer non-cyclicals such as Coca Cola, Pepsico, Krafts, Mondelez, Kelloggs. But what about healthcare stocks?

Last year, we saw pharmaceutical companies facing problems keeping hold of their patented drugs, some like Pfizer winning court cases to extend their licence to produce their blockbuster drug, Lipitor. But even if they lost the case, we as investors still could benefit from investing in generic drug manufacturers.
2013 looks like its going to be a bad year for large Pharma such as Eli Lilly. (LLY). Their full year revenues declined to $22.6 billion from $24.3 billion in 2011, total pharmaceutical sales were also down by 9% YOY. I believe their 2013 earning will continue to be lower than expected as their top grossing products loses patency. Having said that, they only give out a moderate dividend yield of $1.97/yr. I do think they are overvalued currently and i cant see their prices going beyong $60. Currently Eli Lilly is trading @ $54.66 and bouncing off top resistance level @$55.

I think its the same old story for Johnson & Johnson (JNJ). I had previous bought it @ below $65/share back in 2011 and held it till roughly end of 2012. I valued JNJ @ around $75, which it has actually exceeded. It has hit a huge resistance at $79.20 and many investors are getting out of it while its still overvalued. Actually JNJ is a great stock, their dividend payout is quite good (@ 3.2% annually). Like many investors, i think it was a good time to take profit and run.

I have given examples of 2 best Pharma companies in my opinion and both of them are not showing good opportunities. Sometimes one cannot follow the market cycle blindly too, do your own due dilligence before investing in any stock.
You might find a great healthcare stock that is undervalued, study it properly before investing. It seems to me, most healthcare stocks are overvalued right now.