Considering Dividend Portfolio Selection: Key Factors Mentioned by Alexander Kaisin
Livin' Large with Dividends: Maximizing Your Russian Stock Portfolio
Ever thought about earning more than just trading profits from stocks? Dividends could be your ticket. However, they're not always guaranteed, depending on the issuing company's financial health. So, how can one build a portfolio of dividend stocks? Let's dive in.
Alexander Kaysin, the bigwig at "Alpha-Capital" Asset Management in Krasnodar, gives us the lowdown on what else to consider apart from investment duration and economic trends.
While dividends by Russian issuers seemed like a far-fetched dream just a decade ago, plenty of bigwigs now share their profits regularly with shareholders. Experts predict that companies will have dished out over 20.1 trillion rubles in dividends over the past 5.5 years, with the total reaching 31.6 trillion rubles by 2024. With a whopping 3.89 trillion rubles paid in dividends alone in 2022, some shares have been dropped to make way for these generous payouts.
Shareholders' Delight: Returns and Resilience
However, things took a downturn in 2023 due to market volatility and economic uncertainties. Many companies had to put a hold on dividends to preserve their financial stability. Notable among them was Gazprom, which decided to skip dividends for shareholders in 2022, 2024, and 2025. But thanks to the redomiciliation process, more issuers are returning to the pay-dividend bandwagon. In fact, as many as 114 companies have already made dividend payments to their shareholders in the first eight months of 2024, with the total amount paid being almost equal to the 2023 figure - 3.26 trillion rubles.*
The Dividend Race: A Yield Boost
Investors often zero in on dividend yield when choosing stocks for their portfolio. Luckily, the Russian market remains a dreamland for those seeking high yields. The average dividend yield of stocks included in the Moscow Exchange index has been steadily increasing over the past decade. For instance, in 2013, the yield was only 4.2%, while in 2023, it shot up to 12.71%.
But here's the kicker: short-term dividend strategies can yield higher returns than market growth itself. From 2020 to 2024, investments in dividend stocks averaged 15.29%, compared to 14.49% for a broad market portfolio. Similarly, in 2022-2024, dividend investments returned a hefty 10.41%, while the market average was a mere 7.44%.
However, over longer periods, market growth might outperform dividends (surprise, surprise). From 2005 to 2024, the return on stock investments was significantly higher than dividend yields: 17.88% versus 14.97%. So, the sweet spot seems to lie somewhere in between.
Pure Profit over Pure Dividends
Experts warn against solely selecting stocks based on dividend size as it may not always be a wise move. Instead, focusing on a company's pure profit is crucial. According to Alpha Capital Management's research, stocks with the highest Earnings-to-Price (E/P) ratios consistently demonstrate the best results. For example, in 2022-2024, the return on a high E/P portfolio was a whopping 14.58%, and from 2015 to 2024, it was 23.12% (compared to 20.25% for dividend stocks).
To navigate sudden market fluctuations, consider blending your portfolio with a mix of dividend and growth stocks. Regularly monitor companies' E/P ratios to make smart investment decisions. Ever heard of the saying, "Don't put all your eggs in one basket"? Apply it here, too.
A word of caution: choosing stocks solely based on dividend yield carries risks due to potential share-price drops after the ex-dividend date (dividend gap). Historically, the larger the payout, the more drastic this gap could be. To minimize this risk, diversify your portfolio, keep an eye on market trends, and remember that a licensed investment professional or consultant could be your new best friend.
So, there you have it. Happy portfolio-building, and may your paychecks keep rolling in. Keep up with all the latest news on Telegram, VKontakte, OK.ru, and YouTube!
- When building a personal-finance portfolio, considering a mix of dividend and growth stocks can be beneficial for navigating market fluctuations.
- In the Russian market, focusing on companies with high Earnings-to-Price (E/P) ratios can potentially yield higher returns, as demonstrated by the consistent performance of high E/P portfolios compared to those solely based on dividend size.
