Which is better - buying for dividend payout or buying for gain

[abbby]

Since share prices usually falls after dividend ex-date, isn't it better to buy after the ex-date (rather than buying for the dividends)?

[Wd40]

Since share prices usually falls after dividend ex-date, isn't it better to buy after the ex-date (rather than buying for the dividends)?

There is no difference unless if there is dividend withholding tax, which is case for foreign stocks. For Singapore stocks there is no difference.

BTW, dividend investing is an antiquated strategy. Usually high divided paying companies are in mature sectors without much growth and hence they return the profits to shareholders.

Also picking good dividend yield stocks which are not a trap is extremely tough.

You are better off doing index investing. Choose the global stock index or S&P500 and you are good to go.

[malcontent]

WD40 is exactly right - chasing dividends is not a good strategy. While it might feel good when you receive the dividend cheque, it comes at a price. In fact, companies that pay high dividends are basically saying that they see limited opportunities to invest that money into the business to grow. The best strategy is to look only at the total return of your investments over time — even if you are in retirement.

[Max Headroom]

No lah, it's not as binary as that.

Mature companies just don't have the need to grow as fast as during their earlier years. So as they spend a lot less on expansion activities, they end up with an abundance of money each quarter, which they're happy to share with their holders, typically investors keen on a steady drip-drip of income, rather than just capital gains only when they sell.

Own enough dividend-paying stock and you can live very generously on the pay-outs, though there's always the risk of them getting cut when recession or some scandal hits.

Own both types of investments, growth and dividend-paying, and you get the best of both worlds. Or, alternatively, hit the jackpot by owning companies that give you both.

: )

[malcontent]

I agree - dividends aren’t a bad thing, but I would not recommend tiling a portfolio toward high dividend stocks anymore than I would suggest tilting toward low or no dividend stocks. What matters is the total return, the combination of dividends and gains. Broad diversification provides the best balance.

[smoulder]

Dividends being paid out at the expense of the company reinvesting it's cash for more growth and subsequently, the share price growth.... That's what you want to avoid while picking dividend paying stocks.

In simple terms, look for companies with not only a stable or growing share price, but also growing dividend payouts. Typically dividend yields of over 5 or 6 percent are not sustainable and you should probably avoid these companies.

[abbby]

Thanks for the wonderful advice - @smoulder , @malcontent , @Max Headroom , @Wd40

Glad I asked here..after your advice I've been reading up and watching youtube videos which also helped a lot understanding the index funds. And yes i think my investment method is kinda of outdated cos I realised my stock price come down immediately after div dates. So that's not a good method.

I'll be exploring Index Funds from now on, please share any more tips if you do have...

Maybe next question: What are your preferred choices of ETF - SPY, QQQ...? Or which one, and why..?

[malcontent]

Thanks for the wonderful advice - @smoulder , @malcontent , @Max Headroom , @Wd40

Glad I asked here..after your advice I've been reading up and watching youtube videos which also helped a lot understanding the index funds. And yes i think my investment method is kinda of outdated cos I realised my stock price come down immediately after div dates. So that's not a good method.

I'll be exploring Index Funds from now on, please share any more tips if you do have...

Maybe next question: What are your preferred choices of ETF - SPY, QQQ...? Or which one, and why..?

In general, SPY & QQQ are only appropriate for US persons because they are taxed punitively to foreigners.

The equivalent ETF to SPY that is appropriate for non-US persons is CSPX traded in London.

However, the ETF that is most recommended is ISAC which covers what is included in CSPX and the rest of the world, all in one, simple, tax and fee efficient investment vehicle. It’s just an easy way to get maximum diversification with minimum hassle.

Back when we lived in Singapore, I left instructions for my wife (if anything happened to me) to invest our entire equity portfolio in the following ETFs:

70% CSPX: iShares S&P 500 Accumulating
15% ISP6: iShares S&P Small Cap 600
15% EIMI: iShares Emerging Markets Index

It depends what kind of exposure you want. But I would say the basic Bogleheads 3-fund portfolio is the most universal guideline to follow (which covers stocks and bonds). But it can be simplified further into 2 funds with ISAC plus a SGX listed SGD bond ETF. It’s important to understand the risks and volatility so you don’t panic during market drop.