The decision to buy high dividend blue chip stocks (eg. 5-6% dividend yield for Singapore Telco and REITs, etc) depends on 3 main strategies which have to be aligned to 3 personalities.
Here is an example of Singtel (SGX: Z74), a strong blue chip in Singapore, current share price at $3.31, falling nearly 25% from $4.30 / share since a few years ago, dividend yield is about 5.3%, Optimism is 28%. Let’s learn to take action (Buy / Hold / Sell / Wait / Shorting) based on different unique personality.
1) Trader for short term capital gains
– Singtel share price is still a falling knife (although not as sharp as M1 and Starhub which dropped more than 50% in share prices) in short to medium term stock prices, therefore may not yet a good buy for traders who need support of strong uptrend. Singtel share price is affected in short to medium terms by Level 4 (global stock market weakness), Level 3 (weaker Singapore STI index) and Level 2 (bearish Singapore Telco sector, including Starhub and M1), despite the Level 1 business is still strong for Singtel. Although current short term bearish stock market supports shorting (profit from falling price), usually a stable dividend stock with strong fundamental may not be a good choice for shorting.
Possible Action: Wait.
2) Investor for long term capital gains
– Possible to be a contrarian investor to buy low for Singtel (it was less than 25% Optimism when price is nearly $3, even it may get lower in share price, long term holding would have high chance of winning. The concern is more on short to medium term share prices correction, especially global / US stock market is still at high optimism, there is a potential threat of global financial crisis, it may not be wise to hold a stock unless it is defensive with high growth in nature. Singtel is considered a defensive stock but a slow growth stock.
Possible Action: Wait.
3) Investor for long term passive income
– Since the objective is to collect dividend, falling in share prices have exchanged for higher yield for Singtel (5.3% currently). Singtel fulfills the criteria of a dividend stock with stable business (despite slow growth) with stable free cashflow and consistent dividend payment. The critical consideration for passive income investor is on the overall return. If one has $100k capital, is it satisfied to get $5.3k annual return (regardless of up and down in share prices)? What if Singtel share price drops further, yield goes up to 8%, will an investor regret of not able to get $8k dividend? So, the decision depends on reward expectation or greediness of an investor. If compares with bank interest rate (1-2%), property rental (2-3%), even current moderate yield of 5-6% dividend stocks are considered better. In general, the spread between yield of blue chip dividend stocks (5-6%) and risk-free investment (eg. 4% for CPF, 2% for Singapore Saving Bond) is narrow. The trick is on capital allocation, maximize the yield by entry in phases. It means if one could not hold the capital with little return in bank deposit, it is fine for investor to consider 5-6% return (ignoring the share price could drop by the same amount in certain week) with partial capital. Bulk of capital may be reserved for higher yield return aligning to the next global financial crisis
Possible Action: Buy (partial capital only) or Wait
It is clear by now there could be different possible actions for the same stock because the right decision has to be aligned with own personality, eg. holding for short term trading or long long term investing, aiming for capital gains or dividends or both, reward expectation and risk tolerance level, etc.
Learn from Dr Tee to learn 10 different stock trading and investing strategies (including high dividend blue chip stocks as a strategy), aligning with 10 unique personalities.
