Eyeing investment in dividend stocks
In an age of low growth and super-low interest rates, the investment market is increasingly shrinking. The international market is disturbed by concerns over a slowdown in China’s growth and uncertainty over an interest rate hike in the United States.
Many investors rely on products with track records of high yields in the past or the hottest products in the current market when choosing a fund. In fact, the Korea Fund Ratings’ report shows that money is concentrated in the funds that are ranked high in the earning rate. However, investors often don’t have a satisfying outcome through this method alone. Joining a fund after the rate of return goes up could be too late.
Therefore, an investor needs to take the operation philosophy, style and portfolio characteristics into account, as well as the short-term return rate, when choosing a fund. Even for the same equity funds, investors need to thoroughly check whether a portfolio is stable or risky, and whether it focuses on a certain industry or fundamentals.
Next year is expected to be a whole different investment environment from now. While there are mixed views on the interest rate policy of the United States, economic stamina is improving gradually. At this juncture, an investor needs to make a complicated calculation. Low global growth seems inevitable. Small and medium-size company growth stocks already have a high premium, and it is reasonable to assume greater risk. Meanwhile, value stocks and high-dividend stocks are attractive, as they are relatively undervalued.
Investments in dividend stocks are less affected by market volatility, as the investor pursues dividends and capital return in a medium- and long-term perspective. Dividends are directly related to corporate performance, and corporate profit is expected to improve gradually from the second half of this year to next year. And more companies are paying dividends. Hyundai Motors paid the first-ever interim dividend, and Mando and Doosan have announced increased dividends by the end of the year. Long-term investors can also enjoy a compound interest effect by reinvesting the dividends.
by Bae In-su, Head of Baring Asset Management Korea