# What dividend yield is acceptable to you?



## Tyler Durden (12 June 2011)

Assuming you are looking at some shares to hold onto for the long term and want stable dividends, I am curious as to what dividend yield would be acceptable to you?


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## So_Cynical (12 June 2011)

I have 1 stock that doesn't pay dividends and never will, i have a few others paying over 12% (on original capital invested) and a heap more stocks paying between 4 to 8%.

Dividends and distributions are a core part of my overall investment strategy...current return on current portfolio value is about 5.9%


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## Tyler Durden (12 June 2011)

So_Cynical said:


> I have 1 stock that doesn't pay dividends and never will, i have a few others paying over 12% (on original capital invested) and a heap more stocks paying between 4 to 8%.
> 
> Dividends and distributions are a core part of my overall investment strategy...current return on current portfolio value is about 5.9%




Hey thanks, so that's your current return, but I'm just saying, when you look at a stock, what dividend yield would be the acceptable level for you? If you were thinking about buying a stock, and saw it had a 4% DY, would you buy it (assuming it fit all your other criteria)? 3%?


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## So_Cynical (12 June 2011)

Tyler Durden said:


> Hey thanks, so that's your current return, but I'm just saying, when you look at a stock, what dividend yield would be the acceptable level for you? If you were thinking about buying a stock, and saw it had a 4% DY, would you buy it (assuming it fit all your other criteria)? 3%?




I don't have a minimum or maximum figure..i invest in stocks that i believe have a high potential to pay dividends and increase dividends payments going forward.

My lowest dividend paying stock at the moment would probably be TRY currently trading at about $3.60 and just paid a 4 cent divi, so a gross yield of around 1.4% ~ so obviously i don't hold this stock just based on yield, and would say the same about all my holdings.


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## tothemax6 (13 June 2011)

Wouldn't ever buy based on dividend. Indeed, whenever I see high dividend yields I am immediately suspicious that I should not buy (for the same reason one should be wary of a bond with high yields).
In my opinion any stock investment strategy should be based on the broad fundamentals of the company, the economic fundamentals around that companies business (e.g. commodity inputs and outputs), and macroeconomics (e.g. don't buy stock regardless of the companies fundamentals if equity is about to lose value in aggregate).

Good dividends follow good fundamentals, they do not lead them.


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## tinhat (13 June 2011)

I should be more focused on dividends; most of the funds in our family SMSF are in pension mode (tax free) because the member with the most money in the fund is now in pension mode. Thus, if the franking is 100% the effective dividend becomes the paid dividend times 1.43 once the franking credits are added back in.

I haven't been focused on dividends - not with commodities running hot. I'd rather have money in a BHP yielding 2% but with strong internal investment into good growth prospects over the medium term than in WOW with lower growth prospects, but yielding around the 4-5%. So, I don't chase dividends. I don't have a problem with selling shares to release cash when needed.

I think the current sideways market is a good indicator of what can be achieved with a diversified portfolio with a spread of risk between income, blue chip and more speculative and more growth oriented. I have a bias toward growth oriented regardless of dividend.

I seem to be able to make a 10% accumulative return on this sideways market, and that includes making a lot of mistakes, some irrational decisions, and some bad timing;  but includes what I consider to be a measured spread of risk.

When you can get 6.4% at call on bank deposits, 7% on medium term deposits, I think 10-12% return on the stock market is a reasonable return on risk to require for someone who actually needs to be generating income to live from their investments.


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## Tyler Durden (18 June 2011)

I was just reading an article from here, and it said:



> The best companies listed on the sharemarket are currently growing and paying dividends at around 17 per cent a year.




When I read that, I thought "what the hell?", I can't find any company (apart from those dodgy real estate trusts which I know nothing about) that pays 17% dividends. Are they taking amateur investors for a ride??


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## stacks (19 June 2011)

Tyler Durden said:


> I was just reading an article from here, and it said:
> 
> 
> 
> When I read that, I thought "what the hell?", I can't find any company (apart from those dodgy real estate trusts which I know nothing about) that pays 17% dividends. Are they taking amateur investors for a ride??




Bit scary that article was published on June 4 2008.... not the best time to 'borrow to invest'


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## Tyler Durden (19 June 2011)

stacks said:


> Bit scary that article was published on June 4 2008.... not the best time to 'borrow to invest'




LOL! I didn't even catch the date, silly me.


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## tothemax6 (19 June 2011)

If you are interested in a fixed income, perhaps you would be more interested in corporate bonds. There is a 'hybrid securities' thread here where people discuss these high-interest instruments.


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## Noddy (19 June 2011)

Tyler Durden said:


> Assuming you are looking at some shares to hold onto for the long term and want stable dividends, I am curious as to what dividend yield would be acceptable to you?




4% Franked minimum, otherwise would leave my money on fixed deposit at the bank at 6% and forget about it.


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## Tyler Durden (19 June 2011)

tothemax6 said:


> If you are interested in a fixed income, perhaps you would be more interested in corporate bonds. There is a 'hybrid securities' thread here where people discuss these high-interest instruments.




Verrrrry interesting indeed...thanks


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## Julia (19 June 2011)

Noddy said:


> 4% Franked minimum, otherwise would leave my money on fixed deposit at the bank at 6% and forget about it.



Does this blanket statement include a stock which is showing 20%+ capital growth p.a. but only has a yield of 2%?

I'm totally puzzled by the title of this thread.  Simply don't see how you can consider yield as a factor on its own, without taking into account the growth (or otherwise) prospects of the share.


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## skc (19 June 2011)

Julia said:


> I'm totally puzzled by the title of this thread.  Simply don't see how you can consider yield as a factor on its own, without taking into account the growth (or otherwise) prospects of the share.




Yes... it's a bit like asking "What fuel consumption is acceptable to you when you buy a car?". When that is really 1 of many factors to consider.


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## McLovin (20 June 2011)

The best companies are those that can take profits plough it back into the company and generate the same incremental return on capital. Berkshire Hathaway has only ever paid one dividend, but you'd look a bit silly if you said you wouldn't buy it because of it's dividend policy.


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## Noddy (20 June 2011)

Julia said:


> Does this blanket statement include a stock which is showing 20%+ capital growth p.a. but only has a yield of 2%?
> 
> I'm totally puzzled by the title of this thread.  Simply don't see how you can consider yield as a factor on its own, without taking into account the growth (or otherwise) prospects of the share.




According to today's newsletter from the bull -
www.thebull.com.au

Over the past 5 years, returns on the ASX200 have been -

Return from dividends    +5.04%
Capital growth             -0.87% 

Why wouldn't consideration be given to dividend yield when choosing aa investment ?


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## Julia (20 June 2011)

No one has suggested no consideration be given to dividend yield when choosing an investment.
It  has simply been suggested that it's a nonsense to make this the sole criteria which is what the thread title implies.
i.e. if you say "this stock has a yield of 5%, therefore it satisfies my requirement for an investment" and fail to consider other factors, then I wish you luck.


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## Kryzz (20 June 2011)

Noddy said:


> According to today's newsletter from the bull -
> www.thebull.com.au
> 
> Over the past 5 years, returns on the ASX200 have been -
> ...




Presumably they would have neglected to mention the fact that div yield and price have an inverse relationship to novice investors; Trying to produce positive figures by comparing it capital growth figures, in a time which has been marred by the advents of such years as 2008 and onwards.

Case in point, Telstra, div yield was a little over 1% about ten yrs ago, now it's up over 4.5%...pity about the >60% capital loss over time.


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## Boggo (20 June 2011)

Kryzz said:


> Presumably they would have neglected to mention the fact that div yield and price have an inverse relationship to novice investors; Trying to produce positive figures by comparing it capital growth figures, in a time which has been marred by the advents of such years as 2008 and onwards.
> 
> Case in point, Telstra, div yield was a little over 1% about ten yrs ago, now it's up over 4.5%...pity about the >60% capital loss over time.




Kryzz, a point that is rarely understood, this is an issue that overlaps into the buy and hold thread elsewhere on here.


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## Tyler Durden (20 June 2011)

I did say "assuming it fit all your other criteria" at post #3.


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## Julia (20 June 2011)

Tyler Durden said:


> I did say "assuming it fit all your other criteria" at post #3.



 So you did, Tyler.  But the point some of us are attempting to make is that your consideration should be your overall profitability, viz.  what would be the point of choosing a stock which has a yield of, say, 8%, if you are experiencing a capital loss of twice that much?

I know some people buy purely for yield.  They disregard what is happening to their capital investment on the facile basis that 'you have only made a loss if you sell'.
Right, jolly good.  That's undoubtedly what all the investors in ABC Learning, Babcock and Brown and various others told themselves as their capital dwindled by the day.


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## tinhat (21 June 2011)

Noddy said:


> 4% Franked minimum, otherwise would leave my money on fixed deposit at the bank at 6% and forget about it.




The ASX S&P200 dividend yield is currently running at around 4% p.a. (Source: RBA)

So, you would get that with an S&P200 ETF.


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## So_Cynical (21 June 2011)

So_Cynical said:


> I don't have a minimum or maximum figure..i invest in stocks that i believe have a high potential to pay dividends and increase dividends payments going forward.




For example i have 2 parcels of shares in DXS (Dexus Property Group) at an average price of 0.78 CPS, today they announced the June distribution will be the same as the last Distribution 2.59 CPS, so the yield over the last 12 months would be 5.18 CPS a yield for me on my average buy in price of 0.78 CPS of 6.65%

Not to shabby...now with DXS shares currently trading at around 90 CPS i also have capital growth of over 14% and to top it off have established free carry of around 50%  i have brought DXS at low points in its price cycle to get the maximum possible yield and taken part profits to establish free carry.


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## ENP (26 June 2011)

You get taxed on the dividends you receive as taxable income. You don't if it remains in the business.

If you have chosen right, the company should be earning a high % return on the retained earnings, rather than paying it out to you. If they pay it out to you, you have to find another investment that is returning a high % back to you, so if you keep it in the bank or any other investment that isn't earning as much as the business itself is by retaining it, then you are losing out. 

So ideally, if the business can get a satisfactory high return on the retained earnings, my "acceptable" dividend yield would be 0%

If you need more clarification... read Phil Fishers book "Common Stocks and Uncommon Profits" in the chapter "The Hallabaloo about Dividends"


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## Calliope (26 June 2011)

All my stock portfolio in in Hybrid Securities with dividends averaging about 10%.

"Put all your eggs in the one basket and – WATCH THAT BASKET."
– Mark Twain


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## tinhat (26 June 2011)

Calliope said:


> All my stock portfolio in in Hybrid Securities with dividends averaging about 10%.
> 
> "Put all your eggs in the one basket and – WATCH THAT BASKET."
> – Mark Twain




Mark Twain would be the last person you would take financial advice from. Ever heard of the Paige Compositor?


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