Investing in Stocks with High Dividend Yields

Updated: June 9, 2021

Most people invest in equities for long-term capital appreciation. And if you buy stocks that often give out dividends, then you’ll also get to enjoy regular and passive income.

More often than not, a sideways or downtrend market with low inflation and interest rates would present good opportunities for this because when share prices fall, dividend yields most likely rise.

Investing in dividend-paying stocks is like purchasing a real estate rental property, or investing in long-term bonds that pay quarterly interests. However, with some Philippine stocks giving out as much as 10% dividend yields, your potential returns would be higher.

Personally, I recommend buying dividend stocks if your investment horizon is long-term, at least 10 years. This is ideal for those planning for their retirement.

5 Benefits of Investing in Dividend Stocks

1. It’s passive income.
Dividend stocks pay regular income regardless of the stock price. Thus, buying a dividend-paying stock when its price is down allows you to accumulate shares and get good returns.

2. Dividend income has lower taxes.
Dividends are taxed lower as compared to interest income. It’s subject to a final withholding tax of only 10 percent as compared to the 20 percent final tax on the interest income from money market securities.

For example, if a dividend stock and a corporate bond gave out the same gross rate of 5.6 percent, then you would have a net yield of 5 percent from the dividend stock while your net yield from the bond is only 4.48 percent. This might not seem to be a lot, but the difference becomes significant when you consider the amount over many years.

3. Potential for compounding growth
With dividend-paying stocks, you can reinvest the dividend income you receive by buying more of the same company, which allows you to compound your returns over time.

This is like rolling over a time deposit with its interest. The returns are small at the start but progressively become higher through the years.

4. It serves as a hedge against inflation.
The market value of a stock tends to increase through time because of the effect of inflation on earnings, hence dividends. Moreover, dividend stocks protect you from earnings manipulation.

Some companies may report a rise in earnings by increasing accounts receivables. This may look good for accounting purposes but in reality, there was no real value added because no actual cash was received. This manipulation will cause the stock price to eventually suffer.

On the other hand, companies that pay cash dividends would have high quality for their earnings, because the higher the cash component of the earnings, the higher the value added to the investment.

Simply, companies won’t be able to give out cash dividends if they don’t have the money. So, they must actually earn and receive it.

5. Get higher returns than bonds and other securities.
Dividend-paying stocks can give you better returns compared to bonds and other money market securities if you’re willing to take the risk.

Firstly, the company may pay lower dividend rates if they want to keep cash for business growth or expansion. Secondly, the share price itself may decline significantly due to disappointing earnings, which now hurts your capital.

Philippine blue-chip stocks with high dividend yields

There are Philippine companies that give out high and regular dividends, but not all of them are blue-chip companies. Some only give out dividends to those with preferred shares, which is not as easy to buy as common shares.

However, if you’re looking for a quick way to invest in dividend stocks, then below is a list of blue-chip companies in the Philippines that have high dividend yields (as of December 2020).

PLDT Inc. TEL 8.58%
DMCI Holdings, Inc. DMC 8.48%
LT Group, Inc. LTG 7.33%
Globe Telecom, Inc. GLO 5.32%
Manila Electric Company MER 5.17%
Aboitiz Power Corporation AP 4.45%
Bloomberry Resorts Corporation BLOOM 3.08%
Aboitiz Equity Ventures, Inc. AEV 2.75%
International Container Terminal Services, Inc. ICT 2.68%
Metro Pacific Investment Corporation MPI 2.57%

Final Words

For those who are interested in investing in high-yield dividend stocks, it’s important to manage your risk by doing comprehensive research before you put your money on any company.

Some questions to when doing research are:

  • What is the earnings track record of the company?
  • How reliable is the company in paying out dividends historically?
  • How much of their earnings are paid out as dividends annually?

Many companies in the Philippine stock market regularly give out dividends.

Some pay little dividends because they’re expanding as a company, which can be good for you over the long term. And then some companies are already stable, which have less volatility and growth on their share price but give good dividend yields.

Lastly, it’s important to remember that the choice of which companies to buy and how much of your portfolio should be in dividend stocks, would always depend on your risk tolerance and financial goals.

More learning: How to Invest in the Stock Market

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  1. Thank you for this “short list,” it really cuts to the chase, as the expression goes. I will definitely share this with our young troops for their consideration.

  2. Thank you for this article Fitz! How can we buy stocks from these companies? Are they still selling stocks?

  3. Di na updated ang nilagay niyo na list. Iba na ang mga yield nito. Iyong sa LTG nga nasa 1.76 percent na lang ngayong taon, samantalang 7.33 percent pa rito ang yield. Akala ko nang una, luma na ang article na nabasa ko, bago lang pala.

    Nakalimutan ninyo ang pinakamataas magbigay ng dividends (SCC – 8.69 percent)

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