I bought my fair share of manufacturing dividend stocks in the past and what I learn from them is that to benefit from them you had to have enough margin of safety.
If you buy them at fair value or overpriced, a bad earning result or a recession could just caused you to hold this stock waiting for it to recover.
One such stock could be Innotek. Its been a good stock for investor looking for yield, value and growth.
The yield provided at 58 cents is pretty good and judging by its balance sheet you would think that “oh if it continues to earn like this, the yield can be sustain and earnings at most would grow in the low single digits”
Companies like Innotek are inevitably tied to the business cycle and depends a lot on their customers outlook which is affected by macroeconomic factors as well.
Innotek just released their Q1 2011 results and there is a substantial fall in net profit. Their Q1 results is here >
They do not expect Q2 to be great either. One big factor affecting them is that their customers consume equipments with parts made in Japan, which was greatly affected by the earthquake.
My opinion is that manufacturing stocks make good yield stocks only when you see that they have a wide economic moat that creates a barrier to competition that is difficult to erode. There are not many in Singapore. For the rest, they can be good speculation tools to enjoy a ride up and earn decent yields.
But if you get the valuation game wrong you could be in trouble of holding this.
Is this a buying opportunity? I would have to look further.
I run a free Singapore Dividend Stock Tracker . It contains Singapore’s top dividend stocks both blue chip and high yield stock that are great for high yield investing. Do follow my Dividend Stock Tracker which is updated nightly here.