The stock market has seen a slight upward trend since the beginning of the year, but most stocks have underperformed the VN-Index. Many investors find it challenging to profit from the market as the upward momentum is concentrated on a few groups of stocks. This situation is expected to test investors’ patience in the short term.
On the other hand, the market’s polarization presents an opportunity to accumulate stocks with high dividend yields (cash dividends/market price), catering to long-term investment needs. Vietnam’s stock market boasts numerous stocks with a history of high dividend payouts, ranging from tens to even hundreds of percent, coupled with superior dividend yields compared to bank deposit interest rates (around 5%).
A preliminary analysis based on cash dividends for 2024 and current market prices reveals numerous stocks with dividend yields above 5%, including SLS, BMP, PAT, DVP, SAB, VNM, CAP, and IFS. Notably, a few cases, such as CPH, have dividend yields exceeding 650% due to high cash dividend payout ratios over the years, resulting in a market price adjustment to 300 VND.
When a stock pays dividends, its market price is adjusted downward, and the investor’s cost basis is reduced accordingly. For stocks with a history of high annual cash dividend payouts, long-term shareholders may even have a cost basis approaching zero. The annual cash dividends become a passive income stream that investors can use for their expenses or reinvest for compound returns.
Moreover, consistently high cash dividends are indicative of a company’s financial health. The dividend policy is maintained on the foundation of a robust and profitable business. Stable or growing profits will eventually drive the stock price upward, creating a double benefit for investors.
In reality, companies with a history of consistently high annual cash dividends are mostly in the manufacturing sector. These enterprises typically maintain stable profits, and some even experience growth, setting the stage for generous dividend policies. Furthermore, many of these companies are state-owned, and high dividend payouts are almost mandatory.
It is essential to note that the “safe and steady” approach of focusing on dividends is more suitable for long-term investors as dividend payouts hold less significance in the short term. Chasing dividend trends can sometimes lead to a “trapped” position in the short run. With a speculative mindset, investors may lack the patience to hold on, missing out on attractive long-term profit opportunities.
In the context of a volatile stock market, the dividend-focused investment strategy becomes even more effective. It is no coincidence that many large investment funds in the market have embraced this approach. The latest entrant is the KIM Growth Dividend Stock Fund (KDEF) – the first domestic open-ended fund in the KIM Vietnam ecosystem.
Prior to KIM Vietnam, prominent organizations such as Dragon Capital, VinaCapital, VCBF, and UOBAM have also launched open-ended funds with a dividend focus. While each fund has its investment strategy, their portfolios generally target leading enterprises with attractive dividend yields, robust cash flows, and long-term growth potential.
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