Saturday, 4 October 2014

Having too much expectations on your Dividends

So just today, I've received an email from a reader i shall refer to as Reader A.

He asked and I quote:

Hi TI! Good blog! I enjoy reading it. However I have one question, I have also been investing in the ABF SG Bond and am looking forward to the dividends for October 2014. However, if I calculate based on the rate of $0.023/ share that would mean for the year of 2013 I would have received $23. Is that correct?


I replied in the affirmative and he was very agitated to realise he would have earned just $23 or so for the entire year. He asked why is this so, when other financial bloggers are posting dividends of a few hundreds to thousand per month.

I gave a lengthy reply and would also like to share this common misconception I feel many young investors have.

When they invest, naturally they want a substantial amount of dividends. I fear that they also have the misconception that by investing $1000 - $2000, they expect a monthly return of a few hundreds/thousand.

If that was true, there would be many many rich Singaporeans all over the world. No one will be complaining of rising costs.

Investing is a good thing, but should not be assumed as a way of receiving "passive income" and thus no need to work etc etc as mentioned in my previous blogpost.


Reader A has invested $1k++ in ABF SG Bond. And only that.

1. Firstly, this is a bond ETF. Bonds are low risk and also low payout. Stocks carry a higher risk with a slightly higher payout. Therefore $23 for a $1000+ investment is a decent payout if you understand this.

2. Investors that post dividends of $200++ to $2000++ per month has invested at least a few hundred thousand at the minimum over the years to receive a substantial payout. I highly doubt you'll find any investor who invested $1k only and are receiving dividends of $200. Highly unlikely.

Reader A had too much expectations without understanding how his investments were working. And I fear, is this a common misconception amongst others as well?


It takes time to build up a decent amount of dividends per month, with a wide range of stocks necessary. Why? Because different stocks, bonds and REITs pay out at different month. Therefore you cannot buy just 1 stock, invest hundreds of thousands into that 1 stock and expect a stream of dividends every month.

I hope this post helps to clear some queries.

Signing off,
Teenage Investor

4 comments:

  1. Hi TI

    Maybe you can explain the meaning of sedikit2 lama lama jadi bukit to him ;)

    ReplyDelete
    Replies
    1. Haha, hopefully he understands that it's a process that takes time.

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  2. Hi TI,

    Rmb to talk about sustainability of dividends and where the cash given out comes from. Otherwise this chase of money will lead them to investing in junk companies who borrows to pay a higher dividend that is not sustainable.

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    Replies
    1. Hi LP,
      Oh yes, I forgot to mention about the sustainability of dividends haha. Thank you for the reminder!

      Delete