Thanks for dropping by Safe Investing South Africa. I am on a journey to build wealth my way. For any questions or comments, feel free to contact me.

13 Oct 2012

DIVIDEND INVESTING

I invested the whole of yesterday into learning about dividend investing and the terminology. By the end of the day I felt like I know what I'm doing. As a way of background to this post; remember my previous post on my car fund. Its happening this month. And like I mentioned in that particular post, I planned to take an index fund route (Satrix Divi). Then the Mr, who himself uses Satrix, discouraged me. He thinks I should rather continue picking stocks.

I decided to have a 12 hour strategic session with myself, getting valuable education from online sources. If you haven't already picked this up from my blog, I am a bit OCPD. Maybe too OCPD. OCPD is Obsessive-Compulsive Personality Disorder, a condition in which a person is preoccupied with rules, orderliness, and control. I get obsessed with understanding issues and tend to over research to a point of confusion. Being in the dark can easily qualify to being my worst fear. This is how I ended up with qualifications in real estate instead of going ahead and buying and renting homes to tenants like every other small investor does. I decided to go to school in order to do it the "right" way. Halfway through my masters, I realised, there is no "right" way. How disappointing. At the end, here I am continuing with exactly what I was doing.

The one time I hired a financial planner, I was so into financial planning. I would have gone to get some qualification in it, if I were not already stuck in the studies related to my job at the time. And the time I was pregnant, wishing my gynaecologist can just let me operate this kinda computer monitors that show the baby scans. He didn't even think about it obviously. The idea was so stuck in my head that I wished to go do medicine. Unfortunately or fortunately for me, I had a baby on the way and no energy to go study full time for close to a decade. That saved me.

My point is that, even if I were to get a broker, I would still have to understand every decision he takes. Its like a disease. I have friends who hire property managers and forget about their investments for years. Not me. I question every decision, analyse all my properties, follow the trends and the laws related to my investments. I cant help myself. I asked my property manager if he looked at the latest amendments in the Sectional Title Act, once, and... you guessed right, he was not even aware of it. And he is a full time property manager with the majority of her units being under various Home Owners Associations. I don't get that.

Anyway, for yesterday, I had my sleeves folded up, digging for what I initially didn't know until I had the initial terms out of the way:

P/E = price earnings ratio
EPS = earnings per share
Div PS = dividends per share
Dividend Payout Ratio
Dividend Yield

Like most personal finance bloggers, my overall goal is to grow my passive income for our long term goal of early retirement and short term being buying my next car. These two goals shape my whole strategy towards dividend investing. After getting the understanding of the basic terminology I went ahead:
  1. I searched for the high dividend yield stocks in the JSE. And yes, I already knew how that is calculated, even though I didn't need the skill. 
  2. I had about 40 -50 stocks initially in my spreadsheet. I started to trim them according to my sectors of interest. As a South African, I am very keen on Telecommunications and Financials. And because I love shopping, consumer services got in the basket and some energy won't hurt too.
  3. When all was nicely trimmed, I then needed to know which stock to start with. Dividend Yield was definitely not enough to trim some more. I started adding the PE Ratio as a deciding factor.
  4. I later looked at the Dividend Payout Ratio. I read time and time again that a high payout ratio is not that cool. But I kinda went with it as I'm looking at huge companies anyway. And by this time I had convinced myself that all the companies left in the spreadsheet are great. All I wanted was an informed decision on the first stock without ending on the Eeny-Meeny-Miny-Moe roller coaster.
  5. What I forgot is that, I only have R5000 per month to invest for my car fund experiment, which kinda dampens my spirits. I approached the family to take some funds from the our Emergency Fund as my energy boost. And they said YES. Bless them.
This all means that, by the end of October, I will be starting on this very important dividend investing project with a manageable amount of money. I cant wait. Any one on a similar journey already?

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