Q1 2019 has almost come to an end and most of the companies earnings have been announced. Most of the companies which I owned reported worse results when compared to last year and result in reduction of dividend. FY2018 including special dividend from January to June dividend was S$43k. FY2018 excluding special dividend from January to June dividend was S$30k. FY2019 dividend from January to June is only S$25k. Estimated FY2019 dividend from July to December, assuming no further injection of funds will be in the range of S$15-20k (maximum). The range of dividend income for FY2019 will be S$40k – S$45k. However, my total estimated expenses will most likely remain at around S$80k per year.
This is a shock to the system. It is time to face the cruel fact that in the face of trade war, my dividend income is already not sustainable and suffered a massive cut. If there is a recession, the dividend income will take further hit. There are two slaps in the face, firstly there is a draw down in portfolio, followed by reduction in dividend income.
Yes, when you are evaluating a dividend stock, you should look at the Free Cash Flow, the debt/equity level, the payout ratio, and also the moat of business. If the business’ moat is being eroded by competitors, the company may reduce dividend and horde cash for growing its competitive advantage or protect its turf. I need to evaluate my holdings and whether their business have being affected temporary or permanently.
I asked Dr Wealth this question on what level of dividend income is required in order to achieve true financial freedom. Christopher’s answer is 7/4 x your annual expenses. This means that I need to build a dividend income of about S$140k per year. Faints……
I think I need to build this through REITs when there is a steep correction in the prices, then reinforce the effort with margin when the risk is very low.