Edited on June 03 to add a Starhub dividend payment I missed.

It’s over three months since my last post on the shares that I was looking to purchase to generate income through high dividend payments. Therefore, I thought it was about time to provide an update on my portfolio’s performance.

I have created a table to keep track of my stock purchases including the dividends paid and the profit/loss thus far.

Looking at the numbers thus far, I have made a 5% profit on the capital (including purchasing costs), which increases to an 9.1% profit when including announced dividends. Given most of the purchases were in the middle of February that equates to more than 15% p/a and 27.5% p/a respectively. This is better than what I had expected, although it was helped by some companies paying special dividends on top of their normal payouts.

However, I’m now getting a bit nervous about the overall world economy for a few reasons:

1. Growing Euro Zone debt problems.
2. USA debt ceiling negotiation problems.
3. End of Quantitative Easing II (QEII) in June.
4. Signs of growing inflation and slowing global economic growth.

Any one of the above could cause a pull back on the markets and any combination would probably cause major drops. Therefore, I’m very tempted to get out of the market with the gains that I have already made.

Unfortunately I can’t just sell all the shares to take the stated profit and run. As I mentioned above the calculations include announced dividends, not paid dividends. Some companies are quite tardy in their payments (Singtel hasn’t even announced payment dates!), while others are relatively quick to payout (SPH).

SPH paid its dividend on May 24, 2011, while Starhub is next in line to pay on June 02, 2011. Unfortunately SPH’s share price has gone down since I purchased it, but I’m happy to hold on to the stock for the moment. Starhub is looking quite attractive at $2.79, to take both the dividend and capital gain, for roughly an 9% profit after costs. I’m also tempted to sell my Singtel shares at $3.21, but I really want that nice dividend, so I’ll wait for the payment dates to be announced before making a final decision.

SP Ausnet is a special case with the dividend payment due at the end of June, right when I expect the end of QEII to be making people have a serious think about their market exposure. If things do go pear shaped then the Aussie dollar would likely pull back against the Singapore dollar. This would decrease the value of both the share price and dividend of SP Ausnet, so depending how things go I may have to just take the capital gain and forget about the dividend. I can always buy the stock on the Aussie share market if the Aussie dollar dives and then make some gain on the currency once it recovers too.

I did know that the problems I listed above were likely to bite in the middle of this year, so I was quite prepared to get out of the share market around this time. Therefore, I feel like I’m becoming a bit of a short term investor, rather than a long term buy-and-hold investor. This has made me wonder if many people have much luck with a hit and run investment approach on high dividend paying stocks. That is, an investor purchases the share before the price build up in anticipation of the dividend payout and then sells again once the stock recovers from its expected post dividend drop. This would limit an investor’s exposure to major shocks, while still maintaining the income stream. There are the higher buying and selling costs to consider if using this method. I’d be interested to know if anyone has tried this? Feel free to drop a comment below!

Disclaimer: The above is my own opinion and not financial advice.

I’ve been looking to generate an income stream through the purchase of shares that pay high dividends. After evaluating the pros and cons of buying shares overseas, I decided to concentrate on shares in Singapore. The three main reasons for this are the currency risk factor, foreign taxes and Asia being where the growth is at the moment.

While researching which shares to purchase I stumbled upon the Investment Moats blog which has a handy list of some of the better dividend paying shares in Singapore. The list also includes useful information on important statistics that indicate the listed companies’ ability to keep paying their dividends. I found this very useful to narrow down the companies I would eventually purchase. After all, you probably don’t want to buy a share of a company that is paying dividends out of its cash reserves, or worse, from borrowings.

After doing the research I decided to go with the following companies:

Starhub with a yield of 7.7% is a stable telecommunications company with a record and ability to pay out a very good dividend. I’m kicking myself for not buying this stock when it was around $2.20. I thought the market was going to correct at the time, so I held off.

Singapore Press Holdings with a yield of 6.6% is a media company with a monopoly in Singapore. It has solid earnings and dividends over the years too.

SP Ausnet is a Singaporean power utility company with a yield of 8.2%. It’s main operations are in Victoria, Australia and the stock is listed on the ASX too. Everyone needs power, so this should be a stable earner too.

Singapore Post is another monopoly, but has moved more into the retail side of things to support government/citizen interaction, bill payments, and other financial services. The yield is a bit lower at 5.3%, but this is a fairly defensive play.

There are a couple of other stocks I’m looking at too, but they need a bit more investigation before I commit.

Hopefully the stocks I’ve selected will keep paying the dividends at similar yields over the time I hold them. They are certainly paying a lot more than what my money would get while it’s sitting in the bank!

Disclaimer: The above is my own opinion and not financial advice.