Exiting the bunker.
Investors shunned equity for a long time and chose the security of debt. Safety took precedence over returns. Like people hide themselves in the safety of bunkers in war ravaged zones, capital fled the stock markets to safe bunkers like debt and gold. Bunkers are nothing but temporary shelters. Once the Risks reduce, one needs to get out of the bunker and get on with life. Staying put in the bunker would leave you behind those who picked up the pieces and moved on. It is time to shed the ‘bunker mindset’ and head right back to investing in equity. When economies rebuild from a ravaged state, there is opportunity all around. The stock markets will throw up attractive opportunities all around as businesses rebound and show resilience to perform. Intelligent investing is about when we leave the safety of debt to explore the risks of equity. The returns will follow only investors who step out of their bunker mindset and take calculated risks.
The dividends season has begun. Dividends are mostly paid between June and October every year. Companies have a practice of paying dividends around a particular date every year. Investors can anticipate when the dividends will be paid by their companies and also have a fair idea of how much dividend they will receive every year. The dividend yields on mid and small caps vary between 3% and 5% at current stock prices indicating that valuations are attractive. Buying just ahead of the dividend payout ensures that your annualized yields are much higher. You hold the shares for a short duration of time while the dividend is paid for the whole year. A better approach would be to plan and choose dividend opportunities factoring in a holding period of 15 months. This will ensure you get two dividends and the yields will rise significantly and provide a safety net to your capital. The key aspect would be to assess if the company has predictable and stable business prospects for two years. Dividend yield is a dependable investment tool if applied with tact and analysis.