Can Warren Buffett's success in Japan be a blueprint for Singapore investors?

If a friend who has never bought stocks before asks you how buying stocks makes money, what would you answer? Many people might say that it depends on the stock price - if the stock price rises, then it means that you've made money.

Is this statement correct? Yes, but not entirely.

This is because stock returns actually come from two parts: one part is the return brought by the increase in stock prices, and the other part is the return brought by the company's cash dividends.

This can be expressed in a formula:

For value investors, dividend payout is a crucial indicator, especially during times of market volatility. Companies that have enough cash to sustain dividend payments can bring more security for their investors.

Why is Warren Buffett's stock selection so successful? In addition to his extraordinary ability to select high-quality companies, there is also a major investment "trick," which is to favor dividend-paying stocks.

Especially considering that he admitted at the recent shareholder meeting that the period of "incredible growth" in the US economy is ending, and he expects that most of Berkshire's businesses may report lower earnings, "nothing is certain."

From increasing positions in Japan's top five trading companies this year to adding positions in Western Oil last year... Companies that can withstand the test of time during economic cycles and increase dividends have naturally become Buffett's preferred investment targets in the past two years.

Taking Coca-Cola, which is one of Buffett's favorite stocks as an example, in late 1988, Buffett started to purchase Coca-Cola shares at $42 per share for 14.17 million shares, with a P/E ratio of approximately 30 times. In 1989, he also purchased 9.18 million shares at $47 per share, with a P/E ratio of approximately 19 times.

After several years, he added another 6.6 million shares in 1994, rounding up his holdings to 100 million shares. With Coca-Cola's multiple stock splits, Buffett now owns a total of 400 million shares with a total cost of $1.3 billion.

In 1994, he received a dividend of $75 million, and by 2022, the dividend has grown to $704 million. This is the astonishing dividend compounding brought by time.

Without doing anything each year, receiving a dividend of $700 million is indeed a wonderful thing to imagine.

Although Coca-Cola's stock price experienced a bear market lasting for 15 years after peaking in 1998, with a maximum decline of 50%, Berkshire Hathaway still received a total of $4.1 billion in dividends during this period, nearly three times the investment capital, which helped Buffett through the darkest time.

By the end of 2022, over 28 years, Berkshire Hathaway had received a total of $10.09 billion in dividend income from Coca-Cola. Compared to the original investment of $1.3 billion, this implies an annualized return rate of 7.31%.

This means that even if Coca-Cola's stock price falls to zero and all the investment capital is lost, an annual compounded return of around 7% can still be achieved.

Moreover, as time goes by, the absolute amount of dividends has a greater impact on investment returns than fluctuations in stock prices, which aligns with Buffett's investment philosophy of buying stocks as buying businesses.

Looking at Buffett's decades-long investment history, we can see that he often performs better in bear markets than in bull markets.

This is because Buffett prefers value stocks, which share the common characteristics of being undervalued, having good cash flow, and strong dividend-paying ability.

Continuously stable dividend payouts become the cornerstone for investors to navigate through market cycles. This is also Buffett's "secret weapon" for stock selection.

Especially considering the current economic environment, firstly, during a period of rising interest rates, high dividend assets will benefit more due to their short-term characteristics.

Secondly, as market volatility increases and investors' risk preferences decline, high-dividend assets are also expected to receive valuation premiums and have huge potential for price appreciation.

One way is to screen for reliable dividend-paying stocks from a batch of companies listed on the Singapore stock exchange based on this criterion.

Here is a recommended stock selection tool:MooMoo App-Explore-Screener-SG market.

We have quantified the stock selection criteria as follows:

There are a total of 5 stocks that meet the criteria：

After Silicon Valley Bank and Signature Bank's collapse in the United States, as well as UBS's rescue of Credit Suisse in March, Singapore's status as a financial safe haven has become more attractive to depositors. As a result, these three bank stocks have benefited.

Furthermore, driven by strong growth in net interest and non-interest income, Singapore bank stocks' core net profit surged in the first quarter.

However, these positive developments did not enable the three bank stocks to outperform the broader market. One possible reason is that based on the interest rate cycle "almost over," the market expects that net interest margins may have peaked in the first quarter and will gradually decline.

Nevertheless, considering their current low valuations and stable growth in dividend yield, holding these three bank stocks for the long term is still a good choice.

Previously, the company announced a plan to transform into a global alternative real estate asset management and operator, setting new financial goals to monetize assets worth SGD 10 billion to SGD 12 billion and aiming to double its managed assets to SGD 100 billion by 2026.

They believe that these targets appear achievable and note that asset monetization means the company will need to dispose of assets worth SGD 5 billion to SGD 7 billion.

The market expects this may accelerate Keppel Corporation's return on equity, with the target expected to reach 15% by 2026. This expectation has also driven its significant price increase this year.

Its net profit has been stable at around SGD 3 billion for the past five years. The demand side benefits from the aging of ships and the acceleration of environmental regulations, as well as steady orders and full production capacity in shipyards before the 2025 fiscal year. Future cash flow growth is stable and can be used to continue paying dividends.

Combined with its market-leading position and relatively low valuation, it is also a good investment target.

Real Estate Investment Trusts (REITs) are low-threshold financial products that allow investors to invest in real estate. With very little investment, we can become "rent collectors" of real estate.

Generally, the sources of income for REIT funds are:

Stable rental income, which can be rental income from leased properties or tolls on highways, etc.

Capital appreciation of real estate assets. For example, if the manager buys a logistics park for SGD 100 million and after carefully managing it for some time, the park's value rises to SGD 200 million, this part of the appreciation will also be accounted for in the fund's assets.

Price increases in the secondary market. If the mandatory dividend payout of REITs represents its bond nature, then its price changes in the secondary market represent its stock nature.

Let's take the six most active REITs in the Singapore market as an example.

In addition to looking at the difference in their dividend yields from a quantitative perspective, it is more important to qualitatively select whether the real estate behind them is of high quality.

Specific financial information can be viewed on MooMoo,

Keppel DC REIT(AJBU) is a real estate investment trust that principally invests in real estate assets used primarily for data center purposes and assets necessary to support the digital economy.

Considering that demand continues to be driven by long-term trends including adoption of cloud computing, digital transformation initiatives; and artificial intelligence (AI) & machine learning (e.g. generative AI including ChatGPT)，it is understandable that the stock price has risen over the past year.

Which stock do you like the most?Feel free to share your wonderful thoughts in the comments section.