Investing for income and dividend yields.

Reader:
wonder how aggressive you are at aiming dividend % yield when you were younger. Because I realized that recently you are pretty content with 5% yield or lower.







When we invest for income, a higher yield is naturally attractive but we want to exercise caution. 

We should avoid the instant gratification of yield. (See related post at the end of blog post.)

Be aware of our motivations and know what we are investing in. 

Then, we will know if our motivations and the investments match up.

Remember the pyramid:

There are investments for income and investments which are for a mix of income and growth.

Investments for income should be steady cash generators for us. 

The emphasis here is more on stability. 

They are bond like in nature. 

As they are less likely to deliver any significant growth, demanding a more meaningful dividend yield makes sense. 

However, greater emphasis should be on stability for whatever timeline we are looking at.






Investments for a mix of income and growth should also be steady cash generators. 

They could deliver significant growth over time and it makes sense to pay out less to shareholders as they need more financial resources to grow. 

So, if we are investing in such businesses, we might have to accept a lower dividend yield. 

This could change in future as the business matures and starts paying out a lot more in dividend.

Most of my investments are for income but I also have investments for income and growth such as Hock Lian Seng, Old Chang Kee, Wilmar etc. 

A more recent example would be Centurion.





What is an acceptable level of dividend yield? 

The answer will depend on what we are looking for from an investment.

Related post:
Instant gratification of yield.

Centurion Corporation Limited Full Year 2016 Report.

I recently added Centurion Corporation Limited to my investment portfolio at 38c a share and I am pleased to learn that I will be rewarded with a dividend per share (DPS) of 1c which is payable on 19 May 2017. 

An annual DPS of 2c could be the new norm for Centurion Corporation Limited if their business continues to do well, well enough to offset any increase in interest expense. 

If this should be the case, I would be enjoying a dividend yield of 5.26% on cost and for a growing business too.

For more details, see presentation slides: HERE.





I mentioned in my last blog on Centurion Corporation Limited that, although manageable, its high level of borrowings is a concern. To allay concerns, its operational cash flow must remain strong. 

At the time, I said its interest cover ratio was 3.4x and that it could weaken to 2.55x if interest rate should increase by 1%.

So, this is something I will keep an eye on as Centurion Corporation Limited reports its quarterly results for 2017 in the coming months. We want to see that its level of debt remains manageable.

Related post:
Added Centurion Corporation Limited.