Category Archives: Economics

Generating Income with High Dividend Paying Shares – May Update

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.

Stock Date Purchased Purchase Price
Market Price Profit/Loss
SPH 16/02/11 $3.98 $3.86 -3.02%
Singtel 22/02/11 $2.92 $3.21 9.86%
Singtel 18/03/11 $2.87 $3.21 11.77%
SP Ausnet 16/02/11 $1.14 $1.20 5.45%
Starhub 16/02/11 $2.62 $2.79 6.57%
SingPost 16/02/11 $1.17 $1.14 -2.48%
Stock Dividend Total Profit/Loss (Capital+Dividend)
SPH $0.07 -1.26%
Singtel $0.19 16.36%
Singtel $0.19 18.38%
SP Ausnet $0.052 10.02%
Starhub $0.10 10.39%
SingPost $0.025 -0.34%

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.

Buying Property in Guangzhou, China

I’m in Guangzhou, China for a week with my wife to check out the local property market. My wife is from Guangdong province and the majority of her family live in Guangzhou, so it makes sense for us to buy a property here as a long term investment.

Every country’s property market and associated rules are different from one another, whether it be for purchasing or renting. China is no exception, with different rules across the country, especially in the larger cities with high demand and associated high prices.

The restrictions now in place in Guangzhou, as best I can determine are as follows:

  • Foreigners must have the appropriate working visa together with evidence of tax payments over at least one year.
  • Chinese families (singles over 18 are a family) with Guangzhou as their hukou (household registration area) or families living in Guangzhou with proof of one year’s tax payments can purchase one more property.
  • Chinese families who do not fit into the previous category can not purchase any more property.
  • When purchasing a second property the deposit can not be less than 50% and the interest rate not lower than 1.1 times the basic rate.
  • When purchasing a third property no mortgage is available.
  • If using a government housing loan to buy a property of less than 90 sqm then the deposit must be at least 20%. If the property is more than 90 sqm then the deposit must be at least 30%.

In Guangzhou these recent rule changes have had a big impact on transaction volumes. The best example to reflect this was from a lady at the local government agency that performs the registration of property transactions and ownership. She said that buyers, sellers and their agents used to start queueing up at 2 am to ensure that they were able to process the paperwork that day! However, in order to sell my wife’s property, we were able to process the paperwork without much trouble. I would go so far as to say that for a government centre the queues were short and the crowd quite small.

Backing up this story is a bank’s property report showing the transaction volume from February 28 – March 6, 2011 was down 34% compared to the 2010 weekly average.

People with more than two properties are very reluctant to sell a property now, as they will not be able to purchase another. It will be interesting to see if this will cause the availability of properties to dry up, or if the demand was purely speculative with a small percentage of the population trading property like a commodity. At the moment it’s far too early to tell, but another 4-6 months should show the full impact of the new restrictions. Some people say the demand is there because there is simply no where else to invest apart from the “riskier” stock market.

Property Buses and People

People gather to board the many buses provided by the property companies

We looked at a few properties over the last few days, from second hand units over 15 years old to brand new units still under construction. Some complexes were right in the centre of Guangzhou, while others were in the outer city areas and one in a different city towards Macau. The property companies provide free buses to entice people to visit their developments that might be a bit further out of the city, away from a train line, or in another city completely.

Living Area

Living Area

Typical Kitchen

A Typical Kitchen, although this one has a lot of light compared to many and an oven!

Something that was glaringly obvious to me, but the locals seem ambivalent about, is the general poor quality of building maintenance. It seems that once a property is more than 5 years old that the appearance will deteriorate rapidly. The locals seem to just accept that this is quite normal and from what I can understand they don’t want to spend the money on fixing things either. The maintenance costs averaged about ¥2.80 psm, but one older property was ¥8.60 psm, yet I couldn’t see where the money was going!

Apartment Shell

Apartment shell that the owner has left in origninal condition for many years


Bathroom with Water Heater

A Bathroom with Water Heater Exposed is Very Common

Quite a few (>50%) of the 2nd hand properties we saw were hardly in what I would call sellable condition. Some examples are: wallpaper hanging off the walls, bathrooms with bad mould problems, kitchen cabinets with missing doors, dirt and dust all over the place, badly marked walls, etc. Again, this seemed quite normal to the real estate agents. I didn’t take photos of these defects, as I thought I might offend the owners.

An interesting point, only pertaining to new properties, is that you have to get a loan and start paying the full mortgage repayments within a month or two of purchase, irrespective of the construction phase or final completion date. For one property that we both liked that would mean 1.5 years of mortgage payments before we even got the keys! With property prices already quite high and the government placing more restrictions on property transactions there seems little chance of capital appreciation. Therefore, this method of purchase didn’t make sense to me, as the deposit would be tied up in a property that cannot be used as our family home nor generate any rental income.

Putting the nail in the coffin was the average gross rental yield of <3%. With such low rental rates it just doesn’t make sense to buy property in Guangzhou. We decided that if we needed to live in Guangzhou we would be able to rent a reasonable, centrally located, 3-bedroom apartment for around ¥5,000 – ¥6,000 per month.

After concluding that we would not be purchasing a property at this time we were wondering what to do with the money from the sale of my wife’s property. Returning from a day of property viewing we happened to walk past a branch of Singapore’s DBS bank and noticed an advertisement in the window for an AUD$ deposit rate of 6.90%. That’s a bit better than the rental yield in Guangzhou and with Aussie house prices falling it could be the deposit for a property down under!

Generating Income with High Dividend Paying Shares

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.