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Sometimes we all think that when dividend yield is high, then a stock is worth to keep for long term, for dividend purpose. However, this is only a myth but not the fact. Dividend yield in fact is not the best value to measure a company’s payable dividend, because it will be affected by its share price. For example, if a stock is RM10 and pay a dividend of RM1, then its dividend yield is 10%; however, if its share price dropped to RM5, then its dividend yield will be 20%. Do note that in both scenario, the company give out the same amount of dividend, but the dividend yield in second scenario is significantly more attractive. Hence, dividend yield can be considered as trap if it is not assessed properly.

On the other hand, some companies will impose dividend policy to secure the consistent dividend to shareholders. We can also calculate the expected dividend we can obtain if dividend policy is imposed. We use KGB as an example, we can first calculate their TTM EPS, which sums up to a total 6.02 cents. Alongside with the dividend policy of 25%, we can calculate the expected dividend of 1.5 cents, which they in fact did pay the exact amount of dividend.

Dividend is in fact suitable for companies that are big enough, and slowing down their growth. This happen occasionally on banks, where they will pay most of their profit as dividend, because they are companies that are stop growing, and will not reinvest their profit into capital expenditure. In fact, if you would look at growth companies such as PENTA, GREATEC, UWC, they all do not impose dividend policy because they are more willing to reinvest their profit into capital expenditure, hence grow bigger.

In short, if a dividend investor will like to filter their stocks, it is advisable to use both dividend yield and dividend policy to select them, to prevent yourself from the dividend yield trap.



股息其实只适合大公司来派出。这种情况我们可以联想到银行,毕竟它们会用它们大部分的盈利以股息来派出,这是因为他们的规模足够大了,也不需要任何的扩张。相对的,当我们去看那些成长中的公司(PENTA, GREATEC, UWC)时,他们并不会有任何的股息政策,因为他们宁愿拿它们的盈利来进行扩张,以加速成长。


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