High dividend shares

Due to the recent correction of the stock market, some blue chips shares are giving a high dividend yield. A telco, Starhub now gives a yield of 7%. The media company SPH pays 6.1%. This is the dividend paid during the past 12 months, expressed as a percentage of the current share price.

The stock market has corrected during the past month due to uncertainty in the global economic environment. When the global economy turns bad, the profit of companies are expected to drop. In a bad situation where the profit profit drop by 50%, the dividend yield will still be more than 3%, which is quite attractive compared to bank deposits and bonds.

The share price may drop sharply during a very bad market. But, if you are investing for the long term and does not have borrowings, you can afford to wait for the stock market to recover. There is no need to sell the shares in a bad market.

Investing in high dividend shares make sense in this uncertain market. Before you invest, you should study the borrowings of the companies. If they do not have large borrowings, you will be quite safe. If there have large borrowings, i.e. high leverage, they may be badly affected by a downturn in the economy.

You should still diversify your investments by spreading the total invested amount into 5 to 10 blue chip shares. If you do not have sufficient funds to diversify in this manner, you should invest in the Straits Times Index ETF managed by SPDR or DBS.