How reliable are dividends?

[stargazer]

Hi all

Currently have some investment in direct property (Rent)
and direct rescourse stocks. (none pay dividends).

I am looking at investing some more in an area where some passive income can be derived when investing in the capital side of it.

Some of the miners pay very small dividend yields except Zinifex i think but they are $18+ last i recall.

Anyone have any suggestions where i should be looking or considering eg are managed funds better for income producing...?

Borrowed funds are going to be used...Want to continue building on this for income in the future....

If one is relying on dividends for their income are the dividends of a company reliable.

I probably would like to start with companies that are fully franked.

What is considered a good yield and how is it calculated? Where do i find out when the Dividends are paid?

Is there another way say holding an option so you have better leverage but still get the dividend?

Am i considering the right area to start..



Cheers
SG

 

[Julia]

Hi all

Currently have some investment in direct property (Rent)
and direct rescourse stocks. (none pay dividends).

I am looking at investing some more in an area where some passive income can be derived when investing in the capital side of it.

Some of the miners pay very small dividend yields except Zinifex i think but they are $18+ last i recall.

Anyone have any suggestions where i should be looking or considering eg are managed funds better for income producing...?

Borrowed funds are going to be used...Want to continue building on this for income in the future....

If one is relying on dividends for their income are the dividends of a company reliable.

I probably would like to start with companies that are fully franked.

What is considered a good yield and how is it calculated? Where do i find out when the Dividends are paid?

Is there another way say holding an option so you have better leverage but still get the dividend?

Am i considering the right area to start..



Cheers
SG

You've already noted that many of the resource companies pay no dividends.

The simplest way to identify stocks which pay a high dividend is to read through the share columns in your daily paper. There are some which pay an above average dividend and which also have reasonable growth.
On the whole, however, the higher the dividend, the less expectation of growth.
Many property trusts and infrastructure stocks pay good dividends.

Then for a reasonable combination of growth and income, the big banks are hard to beat, and are fully franked.

 

[Prem]

Zinifex i think but they are $18+ last i recall.

Dam. I bought ZFX at $16 at then sold in the market correction early this year at $12.

 

[TheRage]

Dam. I bought ZFX at $16 at then sold in the market correction early this year at $12.

That really does not answer the question now does it.


Julia pretty much hit the nail on the head if you want an income stock banks are quite good. WBC and ANZ are both yielding around 5% ATM and on forecast earnings this year could be yielding as high as 5.5%. Compared to an investment property this stacks up quite nicely. With imputation your looking at around another 2% coming back at tax time which gives you a real return around 7%. If you buy yielding stocks when they are suffering you can even get a better return. On a investment loan at 7-8% your yield can be positively geared especially once interest repayments are deducted at tax time. I have several shares which are purely for yield HNG WBC STW etc and these guys are all positively geared for me.

As to whether dividends are reliable it depends on the company. If it is a resource stock the first thing they will do is stop the dividend if spot price on their commodity falls becasue they will need to retain money for further exploration and higher production if they are to remain profitable. If you do a search on whoever your online broker is you will be able to see what each company has paid over the last ten years.

Relating to the question about managed funds it really depends on whether you want control or not. A high income yielding fund can will pass on income and imputation credits but your investment (unit price) will unlikely grow at same rate as direct shares.

To find out when dividends are paid check ASX and search company for when past dividends were paid. Companies usually follow same pattern give or take a month.

Installment warrants are very good leveraging products to get dividends. An example is you buy 10K of woollies shares but only pay 5K. You receive dividend on full 10K which you use to pay down 5K loan that your warrent is. There is an expense with installment warrents but they can magnafy your growth and eventually when the debt is paid off you will have a very good income producing asset.

 

[stargazer]

Hi all

Thankyou for the replies.

TheRage

Installment warrants are very good leveraging products to get dividends. An example is you buy 10K of woollies shares but only pay 5K. You receive dividend on full 10K which you use to pay down 5K loan that your warrent is. There is an expense with installment warrents but they can magnafy your growth and eventually when the debt is paid off you will have a very good income producing asset.

I am not familiar with this type of thing is it alot more risky or fairly straight foward.

Cheers
SG

 

[TheRage]

Hi all

Thankyou for the replies.

TheRage


I am not familiar with this type of thing is it alot more risky or fairly straight foward.

Cheers
SG

Anything leveraged has risk but I like their format. Installment warrents are internally geared in that you don't take a loan out at your bank. You need either cash or an existing parcel of shares to start up a warrent. Most of the major players offer them ie Macquaire, ABN AMRO. These guys basically buy the stock and sell them to you with a loan attached to the purchase. You give them say 10K in cash for 20K of the share you want and dividends need to pay down the warrant. They do have a fee built into them and this is the downside but so do most leveraged products. One of the other risks is that the loan is usually over a period of years like 10 years. If the underlying security was a speculator and went bust you would still have a debt to pay and nothing to show. Most big firms don't offer warrents in high risk stocks.

 

[stargazer]

Therage

thanks for that appreciate your reply.

Cheers
SG

 

[bvbfan]

You need to consider the time frame for the investment also when you are thinking about a dividend.

Eg OXR bought in 2001/2 around 10c will be yield close to 100% on that purchase now, so you would have a 3500% gain and getting a decent dividend each year.