What are high dividend stocks?

In Malaysia, high dividend stocks typically refer to large companies, especially medium or large-sized ones, with stable performance that distribute dividends. For example, if you hold 100 shares of Maybank stock and the company announces a 5% dividend, you will receive an additional 5 shares, making it 105 shares in total.

It's not only investing in larger companies that can yield dividends. In fact, when a company offers additional stock dividends to its shareholders, it doesn't immediately increase the company's value; rather, it decreases the value per share. This is because if a company increases its value by continuously issuing stock, it's essentially a false valuation.

Why Invest Malaysia Dividend Stocks?

1. Passive Income

Due to the sustainable income generated annually by high dividend distributions, many investors tend to favor the stability of dividend stocks. Good companies not only distribute dividends but also offer capital appreciation, making them a stable investment tool.

2. Low Risk

For those with a lower risk appetite, dividend stocks may be the best choice as high dividend stocks generally possess strong fundamental value. Strong fundamental value essentially means that the company has a robust and healthy business, which can be verified by studying its balance sheet, past performance records, management team, etc.

Since companies that pay dividends to shareholders are mostly mature companies with stable sources of income, investing in them carries lower risk. You can usually predict how much dividends you can receive in the coming years by referring to their historical dividend payout.

How to Find High Dividend Stocks?

There are certain criteria for measuring high dividend stocks:

1. Dividend Yield

Understanding its past dividend payment history is crucial for understanding the duration and consistency of dividend payments.

In Malaysia, dividend payments are usually in cents rather than percentages, and an accurate percentage dividend yield can be calculated by dividing the dividend yield by the stock price.

2. Company

When looking for high dividend stocks, you must choose whether they are small-cap, mid-cap, or large-cap companies. Typically, mid to large-cap companies are preferred, even if the dividend is slightly lower, because they are more reliable and have more stable dividend payments.

3. Sustainable Dividend Payout Ratio

If a company distributes most of its profits as dividends, there is no funding left for reinvestment in the company, which can lead to the company falling behind its peers or industry leaders. For example, an 80% dividend payout ratio means that the company uses 80% of its profits for dividend payments.

In reality, a healthy dividend payout ratio usually stays between 35% and 55%, leaving room for reinvestment of the remaining income.

Best High Dividend Stocks in Malaysia

When we talk about high dividend yield stocks, the benchmark should be at least higher than the fixed deposit interest rate, meaning a dividend yield of 3% or above is still considered good.

Here is a list of some of the best high dividend yield stocks in Malaysia:

1. Maybank Berhad

Maybank Berhad has a dividend yield of 8.56%, undoubtedly one of the high dividend yield stocks in Malaysia.

Maybank Berhad was established in 1960 and has since grown into Malaysia's largest bank with total assets exceeding RM 834 billion and a market capitalization of RM 83.97 billion. It is also one of the most well-known banks in Malaysia, with most government agencies and even multinational corporations using its services, giving it significant influence locally. As of December 31, 2019, Maybank was the largest listed company on Bursa Malaysia.

2. Petronas Gas Berhad

Petronas Gas Berhad (PGB) has a dividend yield of 4.40% and has maintained a stable dividend payout ratio over the years, making it a favored dividend stock by investors.

Established in 1983, it is the largest natural gas company in Malaysia and a wholly-owned subsidiary of Petronas, listed on the Main Market of Bursa Malaysia since 1995. The company has a strong foundation in core businesses such as gas processing, gas transportation, and regasification.

3. Sime Darby Berhad

Sime Darby Berhad has a dividend yield of 6.34% and remains one of Malaysia's top developers, a reason for its continuous dividend payout over the years.

Sime Darby Berhad is still regarded as Malaysia's largest property developer with an estimated total development value of RM 86.95 billion. A dividend payout ratio of 39.12% means that the company is still persistently reinvesting in product development, and it also maintains a target of not less than 20% dividend payout annually.

4. Tenaga National Berhad

Tenaga National Berhad has a dividend yield of 9.01% and is Malaysia's only electricity and utility company.

Being a monopoly in the market, it is also the largest publicly listed power company in Southeast Asia. Its core businesses include hydroelectric power generation, power supply, and power distribution. Due to its classification as essential infrastructure, its importance is evident, making it a favored high dividend stock by investors.

How Soon Can Dividends be Distributed?

1. Announcement Date

The date when the company announces its dividend distribution.

2. Ex-Dividend Date

To qualify for dividends and become a shareholder of the company, you must purchase the stock before the ex-dividend date. Information about the ex-dividend date can be found on the company's investor relations or investment websites, and if you are a shareholder, you will also receive a mailed notification.

3. Record Date

The date on which the company collects information about shareholders entitled to receive dividends.

4. Payment Date

The date recorded in the company's books when shareholders receive dividends.

When Are Dividends Paid?

Dividend stocks typically pay dividends quarterly (4 times a year), semi-annually (2 times a year), or annually (1 time a year), following a predictable schedule. Nowadays, dividends are directly deposited into shareholders' bank accounts, and there is also a dividend voucher mailed to your mailbox to display more information about dividend income.

Conclusion

Investing in high dividend stocks is a good choice for higher certainty and lower risk, but it's essential to diversify investments and not put all funds in one basket. Although high dividend stocks can build a good passive income stream, their overall performance may not be as good as growth stocks if you seek higher returns in the short term.

It's worth noting that companies may sometimes choose not to pay dividends, or dividend payments may differ from previous years, so as a Malaysian investor, it's crucial to be aware of and mitigate risks.