Wednesday, November 08, 2006

Stock Selection Criteria: High Dividend Yields

When selecting stocks, do not overlook Dividend Yields. I admit that there are tax implications when you receive dividend income but there is a co-relation between better managed firms and dividend payouts which should not be overlooked.

Assoc Professor Julia Sawicki of NTU Business School presented a paper at my uni entitled, "Changes in Corporate Governance and Dividend Policy Prompted by the Asian Financial Crisis" [URL][PDF], she cites the work of LaPorta(2000) in which she establishes the case that 'better governed firms pay higher dividends.'

Do a stock screen of companies paying dividends of between 5 and 10%. The average dividend yield in Singapore according to POEMS stock screen is 2.4%.