Using high dividend yield as a screen for stocks

Readers of Show Me The Money 2 by Ms Teh hooi Ling would have came accross this article she published in the Business Times on 5 July 2003.

In that article, she explore using high dividend yield as a screen for stocks, measuring their performance against those that do not. It was found that your chances of picking a winner increases if you screen stocks that pays their shareholders well. Also a large proportion of the stock’s positve equity returns was due to the dividend component thater than the price appreciation component.

She listed down some companies that were providing above average yields. All stocks then was yielding at least 4.2% to 10.4% (thats my beloved ASJ btw). I Thought its interesting to see how they were doing this 3 years since she release that article.

I calculated the total dividend returns as well as the price appreciation. The results are listed below. Note that F&N and SPH subsequently had a split, so I couldn’t effectively calculate them.

One can gather a few things from the data.
--The dividend yield of all stocks were at least 5% per annum.
--Dividend returns have reduce the capital losses of many counters. However they still underperformed the market.
--Well covered (blue chip stocks) tend to perform better than those ulu ones.
--Average yield was 11% per annum.

All stocks still give out dividends during this period one way or another. Note that some counters such as ASJ and Transit did stop giving during some of the years.

Conclusion:
--Looking at high yields is not enough.
--Yield stocks which cannot expand its free cashflow, ROE consistently, Average
management will most likely be bad investment as well.

Dividends can be important drivers for your overall returns. But if you buy at the wrong price, your end result will not look good either.