After March 2020, I changed my investing approach. And to be honest, my returns ( in terms of capital appreciation) has been better. If you read other posts in my blog, you will notice I always talk abut the business being solid. And during pandemic I realized many businesses are vulnerable. They survived well because of there strong balance sheet but the business absolutely stopped. And that meant a huge dent in free cash flow. While free cash flow got reduced, so dividend payout will be reduced.
It made me think, since the mining or oil and gas businesses are so vulnerable to pandemic, we cannot count on them. I know it is only rational to think pandemic wont strike in long time to come. But, the pandemic has exposed their vulnerability none the less. The demand for everything fell so metal and petroleum prices dropped, as a result the earning suffered. And this was not part of the cycle. One can think there will be a upcycle again. And I would not argue with that. But my point is, I am trying to build a passive dividend income portfolio. And I do not want any to minimum interruption. so it was time to readjust my portfolio.
First thing I did was, I studied the companies those were functioning in partial capacity. Utility companies, FMCG companies, prarma, IT stood out. IT especially did not face much interruption thanks to the telecom companies. FMCG and utilities had to funcion to get us going. And as a result if you see they are actually reporting better earning.
Once I narrowed down to sectors, after that I had to select stocks. Being investor in India we are lucky to have some many great companies which are churning out so much cash. As those companies continue growing cash flow, they will pay out more cash as dividends and buybacks. You can read this post to find out how to select stock to invest in for dividend.
I am mainly switching sectors. And one problem is, these businesses are expensive. As investors all we can do is wait for the prices to come down and in the mean time do SIP and invest in great businesses.
Currently in India about 150 million to 400 million people are buying all these FMCG etc. As India becomes a bigger economy more and more people will enter the middle class territory, so the market size will increase. The main risk I see is, what if the country does not grow? But, these is all the possibility of the country to become at least worth a 10 trillion USD economy. That will be 3 times lagers with $5000 per capita income. That makes me really optimistic. I hope this helps, if you have any questions, put them in the comment box.