When to buy high-dividend stocks Prioritize the ability to continue paying dividends rather than the yield market decline Even good companies are sold. interest rate decline Interest rates will be reviewed Stable performance Only the stock price fell After ex-rights Check price adjustment Dividend continuation ability before buying time Check profits, finances, and cash flow Long-term holding × Diversified purchase × Confirm dividend cut risk

Basics of investing in high-dividend stocks

High-dividend stocks are stocks with relatively high-dividends compared to stock price.

There are two main types of returns that investors expect:

  • Income from dividends
  • Gain on sale due to stock price rise

You can hold your shares for a long time while receiving dividends every year or several times a year, which can easily motivate you to build assets.

However, high-dividend stocks are not products that will provide you with stable income if you buy them.

J-FLEC's investment Q&A also explains that when investing in high-dividend stocks, it is important to note that ``high-dividends do not necessarily last forever.'' If a company's profits decrease, the resources for dividends will also decrease. If the dividend is cut or eliminated, the expected yield will collapse.

In other words, when looking at high-dividend stocks, I would like to consider this before considering the high yield.

Does this company have the profits and financial strength to continue paying dividends?

The next step is when to buy.

When to buy 1. When the overall market is down

One of the times when it's easier to buy high-dividend stocks is when the overall market is down significantly.

For example, many stocks are likely to be sold together in the following situations:

  • Increased vigilance over economic recession
  • Financial instability arises
  • Overseas markets will decline significantly
  • Nikkei average and TOPIX plummet
  • Investors avoid risky assets

At this time, companies with relatively stable performance may also be sold together.

If the dividend is maintained, the lower the stock price, the higher the dividend yield.

Stock priceDividend per shareDividend yield
1,000 yen50 yen5.0%
800 yen50 yen6.25%
700 yen50 yen7.14%

Even with the same dividend of 50 yen, the efficiency of the dividend you receive will be higher if you can buy it cheaper.

However, I would like to caution you here.

The meaning of a decline in stock prices is completely different depending on whether the reason for the decline is `anxiety in the market as a whole'' or `deterioration in the company's performance.''

If the price simply falls along with the overall market, it may become a buying opportunity. On the other hand, if the stock is being sold because profits are falling and the dividend is about to be cut, then the apparent yield can easily become a trap.

In a downturn, look at financial results and dividend policy before stock prices. If you skip this point, investing in high-dividend stocks suddenly becomes difficult.

Time to buy 2. When interest rates are expected to fall

High-dividend stocks are also easily compared with interest rates.

Higher yields on bonds and deposits make it easier for investors to earn a certain amount of yield without taking the risk of buying stocks. If that happens, the relative attractiveness of high-dividend stocks is likely to decline.

Conversely, when interest rates are expected to fall, stocks with dividend yields may be reconsidered.

Rising interest rate phase
  ↓
People are conscious of yields on bonds and deposits
  ↓
High-dividend stocks tend to have headwinds

Interest rate decline phase
  ↓
Funds seeking yield tend to turn to stocks.
  ↓
High-dividend stocks may be reconsidered

However, this is not necessarily the case.

If interest rates fall because of a worsening economy, corporate profits themselves may fall. If profits decline, it will be difficult to maintain dividends.

What is advantageous for high-dividend stocks is not simply a decline in interest rates, but a phase in which the attractiveness of yields is reconsidered as long as profits and dividends do not collapse.

When to buy 3. When the stock price falls even though business performance is stable

The ideal scenario would be one in which the company's stock price is declining, even though the company is not doing badly.

The items you want to check are as follows.

ItemPoints to see
SalesHas there been a significant decline in the long term?
Operating profitIs your main business making a profit
Net incomeIsn't it inflated due to temporary factors?
Operating cash flowAre you earning cash
Dividend payout ratioAre you paying too much dividends relative to your profits?
Equity ratioIs there enough financial space
Interest-bearing debtIs the interest burden too heavy?

J-FLEC explains that when looking at investment indicators, it is important to look at them from multiple perspectives rather than focusing on just one indicator, citing factors such as PER, PBR, dividend payout ratio, dividend yield, ROA, and ROE.

The same goes for high-dividend stocks.

Dividend yield alone is not enough. Even if the yield is high, if profits are decreasing, the dividend payout ratio is too high, borrowing is heavy, or operating cash flow is weak, the market may be pricing in the next dividend cut ahead of time.

On the other hand, if profits and cash are stable, but the stock is being sold due to short-term supply and demand or a decline in the overall market, then you are likely to be a candidate to buy little by little.

Time to buy 4. When to check the price adjustment after rights ex-rights

To receive the dividend, you must own the stock by the vesting date.

Even if you buy on the ex-date, you will not be entitled to receive that dividend.

The JPX glossary explains that the stock price on the ex-dividend date will fall by the amount equivalent to the dividend. Actual stock prices depend on supply and demand and market conditions, but adjustments to dividends are likely to be noticed.

Therefore, the following movements may occur before and after rights are vested.

TimingWhat is likely to happen
Last day before vestingEasy to buy for dividends
Ex-rights dateIt is easy to be aware of price adjustments equivalent to dividends
After rights ex-rightsShort-term funds are withdrawn and stock prices may stabilize

If you only collect dividends in the short term, the stock price drop may be greater than the dividend.

If you intend to hold the stock for the long term, you can also buy after seeing how much the stock price has adjusted after the rights ex-rights period. Rather than rushing to collect dividends, it is easier for beginners to understand whether a company can survive even after the rights are ex-divided.

High-yield traps that beginners should be careful of

The most common mistake when investing in high-dividend stocks is buying based on yield alone.

Stocks with dividend yields of 8% or 10% are certainly eye-catching.

However, there is a reason for the high yields.

Why it looks like a high yieldPoints to note
Stock prices are plummetingThe market may be wary of dividend cuts
There is a temporary special dividendThere is no guarantee that it will continue next fiscal year
Earnings are at their peakDividends tend to fall when profits fall
You are worried about your financesWhen cash flow is prioritized over maintaining dividends
Economically sensitive stocks with large fluctuations in profitsDon't rely too much on dividends during boom times

The higher the yield, the better the deal.

The higher the yield, the more I want to think about why the market is leaving the stock at that price. Is the market overlooking it? Or are they looking ahead to dividend cuts and worsening performance?

It's okay to be a little skeptical here.

Don't buy in bulk, buy in parts

It is impossible to predict the perfect time to buy.

An easy way to use this is time distribution.

For example, if you want to invest 1 million yen, you don't buy the whole amount all at once, you buy it in several installments.

How to buyFeatures
1 million yen for a lump sumIt's strong if the timing is right, but it's psychologically heavy if you miss it
5 times of 200,000 yen eachEasy to level out the average purchase price
Fixed amount every monthEasily reduces the hassle of making decisions
Little by little after confirming financial resultsEasy to buy while looking at business results

The Financial Services Agency's NISA special website also introduces long-term, savings, and diversified investments as the basics of asset formation. Accumulative investing is explained as a way to avoid buying only when prices are high.

The same idea applies to high-dividend stocks.

Rather than trying to find the ideal price all at once, it is easier to continue buying stocks in multiple installments while looking at financial results, dividend policy, and stock price levels.

Checklist before buying high-dividend stocks

I would like to at least check this before purchasing.

  • Don't judge based on dividend yield alone
  • Confirmed whether the dividend is a regular dividend or includes a special dividend.
  • Sales and profits have not declined significantly
  • Operating cash flow is not extremely weak
  • Dividend payout ratio is not too high
  • Easy to borrow and finance
  • You can accept a drop in stock price if the dividend is cut
  • Not too concentrated on one stock
  • There is a reason why you can hold it even after the rights have expired.
  • Checking the handling of NISA accounts and taxes

You need to check the high-dividend stocks even after buying them.

Investment assumptions change due to changes in dividend policy, downward revisions to business results, announcements of dividend reductions, rising interest rates, and deterioration in the industry environment. Rather than buying a stock and calling it a day, I would like to review it several times a year to see if it still has the strength to continue paying dividends.

More important than the time to buy is the ability to continue paying dividends.

The following situations are easy to understand when buying high-dividend stocks.

  • when the overall market falls
  • When interest rates are expected to decline
  • When stock prices fall even though business performance is stable
  • When checking for ex-rights price adjustments

However, none of these are universal signs.

Even if the overall market is down, if you buy a company whose performance is collapsing, the damage will deepen. Even if falling interest rates seem to be a tailwind, if profits decline due to the economic downturn, it will be difficult to maintain dividends. Even if it looks cheap after ex-rights, there is a reason why it is cheap if the dividend is about to be cut.

In the end, the order in which you should look at high-dividend stocks is as follows.

Dividend continuity ability
  ↓
finance and cash
  ↓
Stock price level
  ↓
timing to buy

Timing is important, but not at first.

If you want to receive dividends for a long time, choose dividends backed by profits and cash rather than yield. Combine that with time dispersion. For beginners, this is a much more realistic way to invest in high-dividend stocks.

summary

If you can buy high-dividend stocks cheaply, it is easy to increase the future dividend yield.

Easily considered times to buy include a decline in the overall market, expectations for a decline in interest rates, a decline in stock prices while business performance is stable, and an adjustment phase after rights ex-rights.

However, if you buy based on yield alone, you are susceptible to dividend cuts and stock price declines. Dividends are paid from company profits and cash. That's why we need to look at the dividend payout ratio, financials, operating cash flow, and history of dividend reductions.

Rather than guessing at the perfect time to buy, choose companies that will last for a long time and buy them in multiple installments. When it comes to investing in high-dividend stocks, this low-key approach is the easiest to maintain.

reference