To The Moon

The thing is, dividends have a powerful psychological effect on investors.

When a company pays steady dividends, it creates a sticky shareholder base. This is what I call a “Shareholders’ Effect”. This means shareholders who own dividend stocks are less likely to sell their shares and hurt stock prices.

The big problem comes when dividends get cut, it loses this shareholders’ effect quickly.

 Here’s the other thing. The telco business is a capital intensive business. Companies must constantly invest in network infrastructure and bid for spectrum licenses like 5G.

You see, spectrum auctions used to be very expensive in the 1990s. That has since dropped over the years. This has forced Starhub to be a price taker.

Think about it: what’s stopping you from switching to another cheaper telco today, since switching to another telco plan is so much easier today?

Over time, intense telco competition has forced telco operators like Starhub to lower their data plan prices. Data gets cheaper over time.

For me StarHub can be a stock to look into,  Starhub has continued to pay dividends year after year. Since 2020, after its hefty dividend cut, dividends have grown over time.

However, given the intense competition, it’s hard to say whether a high dividend yield is still secured by free cash flow. It’s even harder to beat inflation if a company’s dividends are affected by intense competition.