Wary of high dividend investing strategy

How to pick stocks

Although it is a significant consideration, a company's substantial dividend payments are insufficient to decide whether to invest. The consistency of dividend payments over time is what investors should be concerned about. Currently, high dividends are merely a short-term cash flow attraction. However, the risk is extremely large if the company has no history of paying dividends on a regular basis.

Due in part to the need to distribute profits to shareholders and the favorable business performance from the prior year, many companies, particularly the banks, announced extremely high dividends this year. Nguyen The Minh, Yuanta Vietnam's Director of Research and Development for Individual Customers, advises combining three key elements when implementing the dividend investing strategy:

A track record of consistent dividend payments is the first. Purchasing stock in a company that consistently pays dividends will give investors piece of mind and realistic expectations.

The high dividend comes in second. Stocks with dividends above 10% are generally notable, but it's crucial to ascertain if this is a temporary boost or a level that will be sustained over time.

The stock movement comes in third. Due to speculative capital flow, the stock price frequently rises quickly prior to the record date; nevertheless, after this day, it will be corrected in accordance with the dividend value. It is simple to fall into the short-term bull trap and incur losses later if investors are unaware of this guideline.

In order to avoid "buying at the top" of dividends—that is, purchasing before the record date with the expectation of receiving dividends, but then the stock price corrects sharply, eroding real profits—many analysts suggested that a wise investing strategy would be to wait to purchase high-dividend stocks during a deep correction. It is advised that investors use corrections as an opportunity to purchase stocks with sound financial underpinnings and transparent dividend policies.

Notes for dividend investment

Investors should focus on how the company uses its cash flow to pay dividends when using a dividend investing strategy. The company exhibits strong cash flow, actual profitability, and the capacity to sustain a steady dividend policy going forward if it pays dividends using cash flow from its core business.

On the contrary, some companies, under pressure to maintain a favorable dividend policy for shareholders, borrow funds to pay dividends or use the proceeds from asset sales, divestitures, and financial investments—temporary items—to pay dividends, carrying extremely high risks, particularly in years when the company no longer has significant capital-recovery projects.

Nguyen The Minh believes that in order to evaluate the nature of this source of funding, investors should examine financial accounts, particularly cash flow from operations and free cash flow. When choosing equities, high dividends might be a significant benefit, but they should never be the sole consideration. It is necessary to consider the entire business environment when evaluating the attractiveness of dividends, including core cash flow, long-term performance, and current stock price. Astute investors will understand how to integrate qualitative and quantitative financial data, rather than focusing solely on "yield numbers" at the expense of the firms' actual realities.

What strategy for investors at this time ?

The Vietnam stock market has rebounded rather well since early April 2025, although corrections are common in May. Information will be released in the next week or two that will affect the Vietnam stock market, but not as much as it did in the start of April. President Donald Trump of the United States will decide on tariffs with numerous nations.
There are two possible causes for this, according to Nguyen The Minh: first, a correction is required once prices have increased in order to allow the market to continue rising; second, one should wait for more precise information regarding tariffs to gauge future reactions.

Investors can think about making money now from a segment of the stock portfolio that has recently produced a respectable return, according to Minh. It is indeed possible for investors to keep a large percentage of stocks in their portfolio, but they should remove a portion of the profits if they wish to protect their portfolio. Specifically, since there aren't many investment chances in the market right now, they should wait longer and avoid purchasing new stocks.

Given the numerous geopolitical and global economic ups and downs, high dividend investing strategies must be applied with flexibility, prudence, and a thorough analysis of the data. Investor performance is determined by the quality of cash flows, the sustainability of earnings, and the capacity to sustain dividend policy over an extended period of time.