One source of income that can be expected when we take the FIRE (Financial Independence Retirement Early) pathway is to invest on dividend stocks. We can expect 2 benefits from stock investment :
- Dividend. A sum of money paid regularly by a company to its shareholders out of its profits (or reserves)
- Capital Gain. The profit from selling shares compared to the purchase price
Because the FIRE goal is for long-term, it means that our focus should be on stocks that provide regular dividends, the dividend yield is quite enough and the shares are liquid (easy to sell).
Choosing dividend shares means we have to know the dividends yield. Dividend yield is the percentage value of dividends divided by stock prices. For example, if the stock price is IDR 1000/stock, giving dividends of IDR 50, means the yield dividend is 5%, the result of the percentage 50/1000.
The value of dividend yield of each stock varies. Starting from below one percent to dozens or tens of percent. On average, from 0.xx percent up to 5%, although there are some stocks that give dividend yield above 5%.
For some expert investors, giving too much dividend yield is considered less attractive, because it means that most of the company’s profits are given as dividends, not for an additional business capital. For myself, we can assess the company’s history in providing dividends, whether one time jumps high and other times drop dramatically or stably every year within a reasonable yield range.
The Indonesia Stock Exchange itself published a list of 20 stocks with the highest dividend yield updated every 6 months under the name IDX High Dividend 20. The following is the list for the period August 2018 to January 2019:
Now, how do we choose the preferred stock to be used as a savings stock for FIRE? I myself do a combination of some information, including from the list above, then check the comparative data from the Investing.com website Dividend Calendar page.
On the Dividend Calendar page, I can check dividends for all shares in Indonesia (or overseas if you want), then take a span of the past year. From there you can get a stock list, a calculation date, a dividend and the amount of the dividend yield.
Finally, I compare it with checking updates from the Google page, for example to check the dividend yield of Adaro’s shares (ADRO), I can type the keywords ADRO: IDX and get the following results:
The dividend yield percentage is likely to be different due to selected time span or current stock price comparation, but it can take as an estimate for the average value.
After getting the list of shares to be chosen, I rank them in the form of weighting, for example by comparing the average value of dividends yield each year, market cap, stock prices, liquidity and others. Some blogger recommend Unilever shares (UNVR) for example, considering that the company is mature and the stock trend is always up, but I myself did not choose it because of its high stock price (my capital is inadequate :-D) and small dividend yield, hehehe …
There are several well-known stocks that provide high yield dividends, for example Samindo Resources (MYOH), Indo Tambang Raya Megah (ITMG), Bukit Asam (PTBA), Baramulti Suksessarana (BSSR) and others. I myself finally chose stock dividends for FIRE with the following conditions:
- The dividend yield is at least 2.5% and is proven to provide regular dividends every year
- Provide 2x dividends in a year (interim dividends and final dividends). Most of of Astra group companies usually provide 2x dividends in a year
- The business of the stock company is a growing business, not a business that lives for now or for some time to come. We can learn it by reading the future business plan and the development of the company’s business scope
- Fairly liquid stocks, we can check it by looking at every day transaction qty and amount
- A combination of several sectors. The average share with high yield dividends is from mining companies (MYOH, ADRO, ITMG, PTBA), but if the selected stocks are all come from one categories, it can be at risk for some issue related to the sector or a decline in performance. To avoid this trap, I made a combination of stocks from the mining, pharmaceutical, finance and other several sector.
After selecting some stocks, I made a regular stock saving schedule. I also separate accounts for trading stocks with an account for dividend stock, because I do not need to check dividend stock savings daily every day. If there is an income from stock dividends such as ADRO as of January 15, 2019, I will re-invest the dividend so that I simultaneously apply a compound interest mechanism.
With the composition of the dividend stock investment, I can estimate allocation amount of investment and calculate for how many year until arrived on Financial Independence milestone. My main target is to be able to reach the FIRE level before I reach the age of 50 years. Even though it does not guarantee the result, at least I’ve try my best based on various considerations.