Although taking advantage of the volatility of stock prices, and short-term trading to earn the difference, is the most profitable investment method, but not every investor is suitable for this investment method.。

Short-term trading that takes advantage of volatile stock prices may earn a large spread, but different investors adapt to different trading methods。Some investors with busy schedules and no time to keep an eye on changes in the stock market usually prefer a more conservative and stable method of making a profit on their investments, known as the dividend investment method.

What is Dividend Investment Law?？

Dividend investment method, is to buy profitable and stable growth of high-quality companies, and then long-term holding, each year waiting to receive dividends.。This approach is characterized by the fact that investors do not have to spend long periods of time paying attention to stock market changes and are afraid of short-term volatility trends, and that stocks that continue to pay dividends can generate predictable and stable cash flows.。

In terms of the Malaysian stock market, the more stable dividend-paying companies are usually blue chip stocks (Blue Chip Stock), such as PBBANK (PBBANK, 1295), Malaya Bank (MAYBANK, 1155), Nestle (NESTLE, 4707) and so on, such companies have stable earnings, so the rate and frequency of dividend payments are relatively stable in order to repay shareholders.。

Dividend investment method four-step stock selection.

The first move: stable, rising companies

When selecting a company, make sure that the company is making money over the years and that its earnings are rising year by year。Dividends are the company's after-tax earnings back to shareholders, only stable earnings, in order to ensure that dividends, not only last year, this year to stop.。If the company is just starting out or is still losing money, it naturally needs to keep more money to turn around the business and has a lower chance of paying dividends。

When analyzing a company, investors are advised to look at earnings and dividend payout records for at least the past five years。If you only look at it for a year or two, the answer will not be objective enough.。Investors need to be doubly careful if they find that the company's earnings and dividends are decreasing year by year。Because it could be a warning sign that the industry is starting to go into recession, or that the company is not doing well.。

In addition, investors should not see the company suddenly pay a high dividend, rushed into the market, must understand the company's reasons for increasing dividends.。If the company is only earning extra profits for dividends because of the sale of assets, investors have to be more mindful.。

First, the company may not pay such a generous dividend every year, after all, there are limited assets that can be sold.。Second, a prolonged reliance on the sale of assets for additional income also means that the assets that the company can use to earn income are gradually decreasing, to the detriment of future growth.。

Of course, in addition to earnings performance, investors must also observe whether the company's free cash flow (Free Cash Flow) is stable, and how much cash on hand, in order to determine whether the company will pay a stable dividend.。After all, earnings are just book numbers and will pay dividends depending on whether the company has enough cash。

The second trick: observe the development of the industry

If the industry in which the company is engaged does not decline, that is, the demand for its own products or services will always exist, it is more able to guarantee the long-term stability of earnings and dividends.。

The banking industry is one of the best, because finance is closely related to people's livelihood, all personal finance, credit cards, loans, investment, business, etc. are inseparable from the services of banks;。

Some industries will always face a boom cycle, resulting in profit ups and downs, a big profit, a mediocre performance, and even suffer losses.。The more significant cyclical sectors are steel stocks, oil and gas stocks, and plantation stocks, whose earnings depend heavily on commodity demand and prices。

When the global economy is good, driven by a surge in commodity prices, these companies naturally make a lot of money; when the economy falls into recession, the demand for commodities will be significantly reduced, the company's earnings and dividends naturally follow the "ebb tide."。So before investors buy into these companies, it's best to understand what cycle the industry is in.。

Third move: observe the company's industry status

If the company is a leader in the industry, or has a monopoly position, then their profitability and dividend payout capacity will be more stable。

In general, such companies can make substantial profits by raising the price of their products or services, reducing costs, or having advantages that are not easily replaced。If you're called a shareholder of the company, you'll get a piece of the action.。

Take the stock god Buffett, for example, he has invested in Coca-Cola for many years because the image of Coke has been deeply rooted in the hearts of consumers around the world, and the status of beverage supremacy is difficult to be shaken, so there is no doubt about Coca-Cola's ability to make profits and pay dividends.

In the Malaysian stock market, companies that are recognized as having the above conditions include BURSA (BURSA, 1818), National Energy (TENAGA, 5347), Public Bank (PBBANK, 1295), Bank of Malaya (MAYBANK, 1155) and others.。Their position in the industry, their target customer base, are among the best.。Therefore, it is the "super blue chip" in the eyes of many investors.。

It should be emphasized that due to the large size of these companies, it is difficult to have explosive growth, so the stock price is relatively stable, rarely volatile, more suitable for investors targeting dividend income, not suitable for short-term trading to earn spreads.。

The fourth trick: buy at a low price

If you can take advantage of the stock price downturn, buy quality stocks, you can get a more attractive dividend yield (Dividend Yield), if investors boldly buy quality stocks at this time, until the company's earnings and share price began to rebound, you can collect dividends at low cost。

Of course, this opportunity is hard to come by.。And when the company's stock price fluctuates violently, investors must read the company's financial results, in-depth understanding of the company's business model, growth momentum, etc., to determine whether the company's fundamentals are strong, and whether they have enough cash to overcome the difficulties.。

Dividend investment law focuses on which indicators.？

Dividend Yield

Dividend Yield (Dividend Yield) is a one-year dividend (cash dividend) divided by the share price per share to reflect how much dividend an investor can receive for each share held.。

In general, a higher dividend yield indicates a more generous dividend payout; a lower dividend yield indicates a lower dividend payout.。

For example, if the one-year dividend (cash dividend) is $5 and the current share price is $100, the dividend yield is 5%; if the full-year dividend remains at $5 next year, the share price rises to $125 and the dividend yield falls to 4%.。

The dividend investment method generally pursues a dividend yield higher than the bank's fixed deposit (3% -4%) in order to obtain a greater return from investing in stocks.。

It is important to note here that some companies pay high dividends each year, but the dividend yield is still low because the company's share price is too high。

Among them, the Malaysian stock king - Nestle (NESTLE, 4707) is the best example。The company will pay a full-year dividend of 232 cents per share in fiscal year 2020, one of the highest dividends in the Malaysian stock market.。However, at the closing price of RM135 per share on Tuesday, May 11, 2021.70 calculation, dividend yield is only a mere 1.71%。

So investors can't rush into the market as soon as they see a high dividend, they must analyze it with the company's latest share price.。

Of course, if the company's share price gets lower and lower, it will also push up the dividend yield。In this case, investors have to pay more attention.。The decline in the share price may have been the result of the market's fading confidence in the company's prospects before it decided to take off its shares, causing the company's share price to come under selling pressure.。

If you have the misfortune to buy such a company, not only will you not receive a dividend, but you will also be caught, which can be said to be a loss to your wife and a loss!

Dividend Payout Ratio

Dividend Payout Ratio (Dividend Payout Ratio) is used to calculate how much net profit the company will take out and distribute to shareholders.。The higher the dividend payout ratio, the more generous the company is。

Some companies will set a dividend policy (Dividend Policy), which specifies the percentage of net profit to be distributed to shareholders when making money.。For example, real estate trusts (REITs), known as "rent-receiving shares," generally distribute at least 90 per cent of their earnings to shareholders in the form of dividends, making them the preferred option for many dividend investors.。

Some companies do not have a dividend policy, and investors can only judge whether the company will continue to pay dividends in the future by looking at past dividend payout records.。

SUMMARY

Dividend investment method is more suitable for stable and conservative, do not pursue high risk and high return investors, can be stable dividend is a good return, stable dividend can also become passive cash flow to pay for living expenses。