In 2024, the beginning was hell-level of difficulty, and the market continued to decline. However, the “Ping An Hong Kong High Dividend” index with a blue line performed far better than the “Hang Seng Index” with a purple line. The market is also hotly debating the investment value of high dividends, but are high dividends necessarily good? Whether there is a value trap here is the point that should be paid more attention to.
Figure: Trend of Ping An Hong Kong high-yield stocks
First, in this process, we need to assume that we are the owner (business owner) of the company, that is, what Buffett often said is “buying a stock is buying a company”. Thinking about the owner of the business would be closer to the essence of investment. At this point, we remember a formula, which we will use often later:
Return on investment = growth in corporate profits* changes in valuation levels+shareholder returns
1. Stock dividends are similar to raw eggs
Let's assume that a listed company currently has a profit of 100 million yuan/year, 10 times PE, and a market capitalization of 100 million yuan* 10 times PE = 1 billion yuan of market value.
All profits are paid out in dividends, that is, 100% of the profit is distributed to shareholders. After purchasing the company's shares with 1 billion yuan, 100 million yuan of profit will be distributed to shareholders every year, so what shareholders can get is “100 million yuan/purchase cost of 1 billion yuan = 10% dividend rate.”
When dividends are paid, there will be a process of excluding interest, that is, the profit of 100 million yuan will eventually be converted into cash received by the shareholders themselves. This 100 million yuan needs to be removed from the net assets of the listed company. The listed public...