Buying into high dividend yield stocks

Since 15 August last week, the STI started moving downward significantly. On 17 August (Friday), STI touched the intra-day low of 2,962 before ending at 3,130. For this week, STI was looking better and it ended at 3,370.9 on 23 August but still 294.2 points (8%) lower than the 52-week high of 3,665.13. The stock market in Singapore is expected to be volatile as the investors test the 3,400 psychological level.

 

If you have been watching some choice stocks in the market, you would probably be better off buying them at the depth of last week. (Note: This is written with the benefit of hindsight.)

 

The Straits Times article (23 August) carried an article on “Telco, Media and Transport stocks weather market slump”. These are sectors that paid good dividend to the shareholders in the past. Buying into these stocks is good defensive play in this volatile period. The article mentioned that some stocks like Singapore Press Holdings, Singapore Post, ComfortDelgro have above-average returns and below-average standard deviations (measure on the spread of price swings) during tough markets. (Source: The Straits Times)

 

Value investors will not sell these stocks quickly on the upswing for quick returns based on the price differential. They will probably hold them for their dividend potential based on the anticipated performances of these companies. Should the STI reach the 52-week high again, then the capital gain on these stocks will be substantial. At that point, they will consider selling them.

 

Written on 8/24/2007 9:10 AM

 

Copyright © 2007, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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