The dividend is the key interest for investors in Bursa Malaysia. It is the one magnet that attracts all kind of stock traders. The phenomenon of investing in the company solely on the basis of the dividend is known as Dividend Investing. The other types are value investing and growth investing.
There are 1904 companies listed in Bursa Malaysia, around only 14% of the companies are performing well in the current status of the market. That brings us to the state where we should focus on designing a strategy that can bring us profit in a weak market also.
Dividend investment is one of the investment strategies that can help in all kind of weather in the stock market. There are many stocks which provide a high dividend to their shareholders.
But there are techniques to pick the best dividend stocks in the Bursa Malaysia there are many more things that are necessary to focus before choosing a dividend stock.
Here we are sharing the Best 5 tips to pick a dividend stock in Bursa Malaysia.
5 Tips To Pick Up Dividend Stock in Malaysia
1. Check Dividend History of the Company
Consistent dividend payment should be your focus. No matter how big is the company, how large are the cash flow and profit, if the company does not have good dividend history, think twice before choosing it for investment.
Being a potential KLSE stock trader you should look for at least 10 years of the company’s dividend history. If the dividend payment is good and consistent then choose it to invest. It will better if the dividend payment history is increasing that represents that the company has a good run and it has chances to grow further. Therefore it will share the profit with shareholders as well.
2. Choose Company with Low Capital Expenditure
Capital Expenditure or Capex is the capital used by the company to reinvest, upgrade and maintain physical assets of the organization.
If you are a dividend investor you should prefer the low CAPEX company. A high CAPEX company will use the capital for its management. A low CAPEX company will distribute the cash and profit to its shareholders.
The high tech companies, electrical companies or manufacturing companies, they all have very high capital expenditure as they have to maintain the up to date technology and they require to continuous updates in the production to sustain in this market.
Hence survey for a company that’s able to maintain its business with minimum capital expenditure.
The company has a stable free cash flow will be able to pay the dividend to its shareholders.
3. Chose the company with High Dividend Payout Ratio
The dividend payout ratio or payout ratio is the ratio of the total amount of dividend paid to the net income of the company. You can say it is the percentage of the earning that is paid to shareholders in the form of a dividend. A few numbers of the companies in Bursa Malaysia have a dividend payout ratio of more than 90%. (But too high dividend payout ratio is not stable.)
The companies which are stable and well established in their product or service then they distribute their profit to shareholders more actively.
Therefore to choose the best dividend stocks in Bursa Malaysia to look for the companies which have a dividend payout ratio of at least 50% more than this.
If a company is holding to cash and they are not paying to the shareholders, then research if they have a good reason for this. Sometimes the company hold the cash and distribute them later which can be good for long term traders.
4. Mid and Large Caps Stock Can Be Helpful
You are already aware of the fact that dividends are distributed by the companies which are mature and have stable cash flow, revenue generation, and profits. The companies which are not fighting for existence in the market, and they are expanding to new projects come under the large-cap and mid-cap stocks. Therefore most of their earning can be returned to shareholders as dividends.
There are numbers of mid and large cap stocks listed in Bursa Malaysia, choose the companies with good dividend history and invest in them.
5. Fundamental of The Company is Important
Fundamentals of a company include basic numbers of them that show the performance of the company. Balance sheet, cash flow, overall management, and income statement, dividend payment etc are primary fundamentals of the company.
Many stock traders and dividend investors forget about the fundamental analysis of the company. Just focusing on the dividend and dividend yield is not enough in the stock trading. A stock trader should always consider the overall health and performance of the company.
A bad fundamental of the company such as decreasing profits, falling revenue, negative cash flow etc are all the bad signals of the company. There will be huge chances that the company won’t be able to pay a dividend in the long term.
The fundamentals of the company also decide the market sentiment, therefore, fall in its stock price. Weak market sentiment makes stock trader to thinks that the company is not performing well and they stop investing in it. This leads to less or no dividend gain.
So periodically make sure the company you want to invest in will remain fundamentally stable and healthy for many years to come.
There are many more tips to pick the best dividend stocks in Bursa Malaysia such as, do not invest in the company with debt even if the company has good dividend record etc. Being a dividend investor you always keep your eye on all the above factors that we have mentioned to pick best dividend stocks. Dividend stocks are the one that keeps stock trader on the stock market and they are the active sources of the income.
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