High Yield Dividend Stocks are Not Cheap, Maybe More Pain Ahead, Maybe Not
Most readers would know that I maintain a list of very popular high yield dividend stocks in Singapore.
You can see the dividend yield, and how the dividend yield fluctuates as price changes. You can see its EV/EBITDA and its net debt to asset, to assess how leveraged they are.
For some time, I kept getting the high yield are not cheap argument.
Perhaps it depends on the context of what other stocks they are comparing to. Or the time period they are compared to.
Interest rate is rising, so what is an average yield in the past, say a 5-5.5% dividend yield for Singapore based office properties, 6.5-7.5% dividend yield for industrial properties are not considered fair value.
However, high yield dividend stocks, if they do not have a business behind it, tends to be interest rate sensitive.
They are definitely not too expensive.
The reason why dividend stock fall is because:
- of reasons affecting the whole market that has not got to do with them
- of reasons affecting their sector. Definitely got to do with them
- of reasons affecting themselves only
WE have something of #1, #2 and #3 affecting them.
Many have a 14-20% draw down from peak prices.
Some key notes:
- Suntec peak $2.25 now $1.69, which is 17 Jan 2017 price. This is a 25% draw down from top at $2.25
- Capitaland Commercial Trust peak $2.05 now $1.63. which is 10 Oct 2017 price. This is a 20% draw down
- Parkway Life REIT peak $3.03 now $2.58, which is 16 May 2017 price. A 14.8% draw down
- Mapletree Logistics peak $1.38 now $1.21, which is Apr 2018 price. A 12% draw down
- CDL Hospitality trust peak $1.82 now $1.60, which is Sep 2017 price. A 12% draw down
- Starhill Global‘s peak was at $0.89 at Jul 2015. Current price is $0.65. A 27% draw down
- Starhub‘s peak was closer to $4.70 in 28 Apr 2013 and its been on a down trend. Current price is at $1.67. A 64% draw down
- M1‘s peak was closer to was closer to $4.00 in Feb 2015 and its been on a down trend. Current price is at $2.59. A 35% draw down.
- Hutchison Port Holdings HPH, the USD one, IPO at US$1.01 in 2011 and its been on a down trend for 7 years. Current price is at US$0.29. A 71% draw down.
- Ascendas REIT peak $2.70 now $2.58, which is Feb 2018 prices. A 4.4% draw down
If you have a pre-conceived notion that dividend stocks are safer, less volatile, that dividend makes up for it, chances are they are not as safe as bonds, less volatile as you imagined.
You can lose your pants off as a retiree if you are looking at high yield dividend stocks, as high yield bonds that default.
Dividend will make up for it, if the business and fundamentals are intact.
When prices are down, it does present an opportunity. It means things are not as expensive as last time.
However, that does not mean that they are attractively valued either.
If there is one thing working in these stocks favor, in terms of appeal, is that the narrative of rising interest rates, poor demand and supply, business fundamentals and falling stock prices, have created a negative narrative.
Its always better to look at times like this then when things are always bullish.
You know that more or less, a lot of these companies have their pants down already. More are showing weakness than strength.
A lot people have good returns from these stocks that have large draw downs.
A lot of people get caught and lost money in the same stocks as well.
What is the difference here? Share with me your experience.
To get started with dividend investing, start by bookmarking my Dividend Stock Tracker which shows the prevailing yields of blue chip dividend stocks, utilities, REITs updated nightly.
Make use of the free Stock Portfolio Tracker to track your dividend stock by transactions to show your total returns.