5% Dividend Yield.
That was the hurdle rate I was aiming for in a long time for my portfolio since I started investing.
We have been living in a ferociously low interest rate environment almost for the whole decade that we struggle to find a good company that can yield a decent 5% yield for the longest time.
And so I worked on my early retirement based upon the 5% yield hurdle rate and work backwards to find out how much capital I needed to generate that.
That magic number was originally at $1m, but it was always a play between moving targets since there are so many variables within.
We have seen plenty of fiscal policy tightening in the last 1 year where interest rate starts to spike and things start to move into the unchartered territory, at least within the past decade.
The new generation, including myself, is rather unfamiliar in this territory and there are times when we started to doubt if this is real, or fear that comes setting in.
First, you have your mortgage variable home loan starts creeping up, followed by a couple of hikes in your fixed deposits.
Then of course, you would have your corporate bonds offering higher YTM and subsequently as the expected return increases, you wanted something higher yields for your equity companies.
Simply put, what was once 5% yield is enough for me, now I wanted something higher.
I wanted to up my hurdle rate according to market conditions and follow the rest of the herd using the same requirement.
Sentiments in the market are never going to be logical following the requirement set under the economic conditions so we’re always going to see some mismatch between price, value and opportunity.
For example, Singtel price has ranged at about $3.50 back in 2014, and then went all the way up to $4.50 in 2015 before reverting back to where it is today at $3.16.
Sure, we’ve seen their overseas investment like Bharti posted their first growth phase year on year back in 2015 before losing their momentum growth today but the question remains if the valuation accounts for that growth back in 2015 when investors bought it at $4.50 as compared to say today.
Of course, it is way too simple just to account for that nature and ignore the outlook of the telco industry but my point is if investors take that into account when buying at the peak with optimistic growth outlook prospect.
What was once a 3.2% yield back in 2015 is currently today a 5.5% yield in 2018 at current price.
I think there’s opportunities all across the markets to get your portfolio to a higher hurdle rate and a dividend yield that are sustainable for a long time to come.
If you are into dividend investing, it could be an exciting time ahead.
At least for me, I am happy enough to get my portfolio up from an original 5% hurdle rate to a 6.2% yield now, and possible even higher as I try to seek good companies yielding decent sustainable yield for my future retirement.
Thanks for reading.
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