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Author: kcchongnz   |   Latest post: Sun, 8 Oct 2017, 12:47 AM

 

Roti Canai” Dividend Yield Investing Strategy My Experience kcchongnz

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I wrote an article titled “Investing for dividend” just two days ago in the link below:

http://klse.i3investor.com/blogs/kcchongnz/85015.jsp

I was particular amazed by the comment below here and I love it:

[Posted by Kevin Wong > Oct 25, 2015 08:51 AM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

Dividend investing is also win-win way of making money.
Good karma everybody
!]

If I buy a good dividend stock and hold it. I receive dividend every year for my expenses. I can play golf every week at different golf courses around the country or in the nearby countries, go for nice dinners, pay my utility bills every month, and occasional travel around the world etc. with the dividends without having to sell my shares.

Most of all, I buy the good dividend stocks from someone else at a reasonable price from him, which he is happy. I still can enjoy the good dividends and I don’t have to think of those tricks on how to sell off the shares high to gain at the expense of others buying high from me.

Yes, a win-win way of making money. Good karma. I like it.

 

I like this comment too:

[Posted by geary > Oct 25, 2015 11:03 AM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

Berkshire never paid dividend for years, because the management retained 100% of earnings and reinvested or allocated all the $ into fantastic growth companies. The rate of return keep on increasing, and the return average above 20% per year. The stock has a market capital of above 100 million per lot. Dividend is like father giving a bit of "ang pau" to his children. Company that can generate fantastic growth of EPS is the right one to invest and the ROE and ROTC automatically increased.]

 I agree with the above statement. If I had money to invest in 1970, and know about investing in US, I would invest in Berkshire Hathaway and keep the share until now. I would be extremely happy by now. But BH is only one out of the thousands of companies listed in the New Yoke Stock Exchange. How would I have chosen BH to invest then?

 

Here is another one.

[Posted by GGmalaysia > Oct 25, 2015 09:04 PM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

Hello, please have a look at google. that's is a giant castle in the air and its growing and growing. oh ya, it didnt pay dividend for years and years. isn't it a good share?]

Hello there. I agree with you, absolutely. Goggle is a fantastic company now, and it will be for quite some time to come. No doubt about it. I believe your capital gain has been fantastic since you have invested in it when it was first public listed a few years ago.

Did you invest in many other Dotcom companies in the late 1990s when they were first publicly listed such as Boo.com in UK, Learning Company, Webvan.com, Pets.com, Kozmo.com, Flooz, EToys, Napster, and hundreds more of them in US?

Aren't they supposed to b high capital appreciation type of companies? Where are they now?

 

Here is a great comment:

[Posted by DreamPredator > Oct 25, 2015 08:56 AM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

Dividend investing is only for roti canai & teh tarik money. A serious investor does not allow any thoughts of mediocre dividends from distracting him from the real, more substantial, more worthwhile pursuit of capital appreciation.]

For many people, they could have thought that what DreamPredator mentioned above is true. They may think that if they buy a RM1 stock which pay a 5% dividend yield, they only get 5 sen back in a year.  If he invest RM10000 in the stock, he only get RM500 ringgit a year, and he needs to hold 20 years to get back the capital.

No wonder he said “Dividend investing is only for roti canai & teh tarik money”.

But is that what would happen; you pay RM10000 for the stocks and receive RM500 a year, and only after 20 years, you get back your capital?

Or is it more of an investing strategy based on high dividend yield which would provide you with a higher total return?

This was what I have written in the article:

The share price will go up because of the growth in dividend. The dividend of Apollo was 7.4 sen in 2008 when it was trading at about RM2.50. The dividend yield was 3.0%. Its dividends has increased to 25 sen now and at RM4.98, an even more attractive DY of 5% when the share price has risen by 100% in 7 years, or a compounded annual growth rate of 10%.”

May be I should have put the title as “Investing for dividend yield” instead as commented below.

[Posted by spermwhale > Oct 25, 2015 01:43 PM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

There is a difference in investing based on dividend yield and investing for dividend. At least if the company can give out dividend consistently it is making profit.]

Thanks spermwhale for your input.

 

Everybody knows IBM is a fantastic growth company andthat its capital appreciation is high. If you have invested in IBM in 1950, you would have gotten a very good compounded annual return (CAR) of 11.2% of which 9.0% of capital appreciation, and 2.2% in dividend up till 2012.

Exxon Mobil, a high dividend stock’s price appreciation is with a CAR of 7.6%, much lower than that of IBM, but its dividend yield is 4.7%, giving a total CAR of 12.3%, 110 basis points higher than that of IBM.

http://klse.i3investor.com/blogs/kcchongnz/81690.jsp

Of course we talk about long-term investing. Sorry, we are fundamental value investor. We talk about long-term. And a difference of just 1.1% return over 62 years is hell of a difference in total cumulative return.

That is how fundamental value investors invest, unlike this one:

[Posted by DreamPredator > Oct 25, 2015 02:13 PM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

It's not the 'method' that is important. So, no need to be distracted by any talk of 'method'. One goes by what works for oneself.
My 'method' is based mostly on watching price action, feeling the pulse of the investing people via forums, biz section of newspapers, biz mags, gut insticnt etc. ... No FA, not TA, no MACD for me ... Only MacD I find inspiring ...
But I quite regularly beat the performance of my remisier ... Honestly ...]

The above gentleman has his own way of investing. Each has his own way of investing, and this gentleman obviously has been doing extremely well. Congratulation.

But no thanks, fundamental value investors are quite stubborn people. They usually stick to their own principle; invest for long term, share the fruits of the growth of the company, and hence its dividends.

Is fundamental value investing, or dividend yield investing that complicated?

[Posted by geary > Oct 25, 2015 02:09 PM | Report Abuse http://cdn1.i3investor.com/cm/icon/trans16.gif

KC only makes investing look so complicated. One foot hurdle is so simple, but he want to cross a 7 footer.]

I don’t think so. As a fundamental value investor, I prefer to jump over a stick laid on the ground. I think those flags and pennants, teacups, shooting stars, doji, heads and shoulders etc. are much more complicated and abstract than dividend yield. I just do not have that intellectual level to comprehend all those complicated terms.

That is why I choose my circle of competence.

 

I have mentioned in the article below that the dividend yield investing strategy has worked in the US with the academic research. It has also worked in Bursa.

http://klse.i3investor.com/blogs/kcchongnz/85015.jsp

I always like to follow investing strategies which are simple, intuitive and have proven worked with solid evidence and not complicated terminologies and those merely hearsay strategies.

 

I have also explained the importance of dividends in the same article above, such as:

  1. It is real
  2. It provides a “floor” to share price when bear stampedes
  3. Dividend yield keeps me in close touch with the real world when there is irrational exuberance in the market.
  4. It prevents me from being side-tracked by irrelevant events such as bonus issues, share spit, “free” warrants etc.

Think of it, I do have some “experience” in dividend yield investing strategy. The “experience” was not real experience per se, but the after-thought about it as shown below.

 

Dividend Yield Investing Strategy, My “Experience”

As usual I would refer to my own portfolio put up in i3investor on 21st January 2013 by Tan Kian Wei, one of the major contributors in i3investor as shown in the Appendix and in this link, just to show that it is not “Empty tong, pong, pong, pong” type of claims.

http://klse.i3investor.com/servlets/pfs/13147.jsp

Those stocks were chosen based on fundamental analysis, mainly based on the principles of Joel Greenblatt’s Magic Formula Investing Strategy in the link here.

http://klse.i3investor.com/blogs/kcchongnz/51631.jsp

It was not base on the dividend yield investing strategy as I have said, I didn’t care much about this strategy as I followed the teaching of the book that dividend policy doesn’t matter in investment return. But the dividend yields of which stock was computed retrospectively were based on the prices and the dividends then.

The portfolio of 10 stocks were just happended to be all paying dividends as shown in Table 1 in the Appendix. All stocks were coincidently with dividend yield of more than 3%, higher than the prevailing fixed interest rate from the banks then, except for Kimlun and Plenitude.

Here are the salient features of the return of the portfolio after a holding period of 2 years and 9 months until today on 26th October 2015.

  1. The portfolio return a total of 117.4% compared to the broad market return of 10%, or an excess return of a whopping 107.4%.
  2. SKP Resources, with a high DY of 9.7% then, has a high total return of 352%, Prestariang with DY of 5%, returns 379%, and Pintaras, 4% DY, returns 187%.
  3. There are no losers at all.
  4. The low dividend stocks of Kimlun at DY of 1.8% has a return of just 3.5%, underperformed the market of 10%.
  5. Not all high dividend stock ahs high total return. Pantech with a high DY of 4.5% then, underperformed the market. That is another story.

 

Conclusions

Investing in dividends doesn’t mean just collecting a fixed amount of dividends every year. Dividends general grows with the growth of the company as time passes. The share price will appreciate too as dividend grows. This will also provide the capital appreciation besides the growing dividends.

It has shown that dividend yield investing strategy is a viable investing strategy which could provide extra-ordinary return to investor.

Most of all, it is also a safe investing strategy.

Are you interested to invest in the stock market higher expected return safely?

Feel free to contact me at

ckc14training@gmail.com

 

 

KC Chong (26th October 2015)

 

 

Appendix

 

Table 1: Dividend yield and stocks returns

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  7 people like this.
 
paperplane2 Bias, how come u did not show high div yield stocks at a time then crash??
26/10/2015 21:15
26/10/2015 21:15
GlobalValueInvestor kcchong, mind to reply my email pls? Tqvm!
27/10/2015 03:10
I_like_dividend Agree with paperplane2 chosen stocks are bias and DY figures fake one.

More like cost DY than TTM(present) DY.
27/10/2015 04:06
kcchongnz Keep this comment as a record first.

Posted by I_like_dividend > Oct 27, 2015 04:06 AM | Report Abuse

Agree with paperplane2 chosen stocks are bias and DY figures fake one.

More like cost DY than TTM(present) DY.
27/10/2015 05:34
WC I think agree with the figures which KC used. Cost DY is definitely a more appropriate measure since you are making your buy decision at the point of time of Cost DY
27/10/2015 09:51
spermwhale Caveat emptor. Don`t based your buy decision on dy alone. During financial crisis, interest rate went up to 12 to 14%. No company can match that and we know what happened to the share price.
27/10/2015 10:18
shinado There are many ways to invest and it's up to individuals on their preference. FA or TA. In TA you have many patterns and chart to choose from. Even in FA itself there are so many criteria that one can choose to focus. ROAE, ROIC, cash flow, EPS growth, EV/EBIT, PE, DY etc etc. At the end of the day, you choose based on the methods you are most comfortable with. Everyone have different risk appetites. It's like eating ice cream, so many flavours out there. You pick your flavours and someone else pick theirs. At the end of the day, you all still enjoy your ice cream.

So, at the end of the day, keep doing what you do best. Thanks kcchong for all these articles. It helps to have a look at investing in another perspective.
27/10/2015 10:27
15% to 20% Read from blog..

Assuming you bought a counter at RM1.00 and they make RM0.20 (good right?) every year for 10 years. The price increase and trading in a range of RM1.30 to RM2.50. You didn't sell because they are still a very good counter. Suddenly world economy crash and the company started making losses and trade below RM1.00. What you get? They made so much money yet you get nothing.

Assuming you bought another counter at RM1.00 and they make RM0.20 per year. But they pay you 60% as dividend (60% payout ratio = RM0.12). Same case above, after ten years they trade below RM1.00. But what you get? RM0.12 X 10 years dividend =RM1.20. At least you take back your capital plus profit.

Your return on investment is capital gain PLUS dividend. Always look for company that has consistent dividend payout
27/10/2015 18:16
kcchongnz Posted by paperplane2 > Oct 26, 2015 09:15 PM | Report Abuse
Bias, how come u did not show high div yield stocks at a time then crash??

The article is to share if a DY strategy would work by back testing a portfolio of stocks, whenever the time it is now. It is just some rough numbers, never meant to be an academic research or what.

It never meant to be a game of playing around if the market is up, down, boom or crash. And what crash you are talking about? When was the "crash"?

But if you want to see if this strategy still works if there was a market correction, you can refer to this link here:

http://klse.i3investor.com/blogs/kcchongnz/81690.jsp

Yes, it still worked very well with a return of 95%, compared to the flattish market over the same period.

But that analysis was not done purposely to check if it works during a crash or what (what crash?),but purely because I was writing an article which used the portfolio as an example.
28/10/2015 03:12
GlobalValueInvestor @kcchong, emailed you few times, did you receive it? Pls reply, thanks.
28/10/2015 05:03
Frank Soweto If I buy a good dividend stock and hold it. I receive dividend every year for my expenses. I can play golf every week at different golf courses around the country or in the nearby countries, go for nice dinners, pay my utility bills every month, and occasional travel around the world etc. with the dividends without having to sell my shares.

Very well said. divvy to me is an appreciative bonus especially when the company I invested in doing well and rewarding their shareholders but if you're roti chanai investor investing in longkang shares of course Not only u won't be getting any roti chanai let alone divvy but u will be giving them YOUR divvy LOL
28/10/2015 06:04
paperplane2 In first place,u r picking those successful companies.it is bias alredi.
28/10/2015 07:10
paperplane2 Second, using such bias perception and comment that as such it eorks for div investing strategy is a total fail statements. You might need data as long as 20yrs, and all bursa stocks, in order to develop a statement tht div investing works, in Malaysia, in 20yrs horizon!
28/10/2015 07:12
NOBY paperplane... chk this out... such a study bas been done before...
http://klse.i3investor.com/blogs/kcchongnz/62033.jsp
28/10/2015 07:30
kcchongnz Posted by I_like_dividend > Oct 27, 2015 04:06 AM | Report Abuse
Agree with paperplane2 chosen stocks are bias and DY figures fake one.
More like cost DY than TTM(present) DY.

Of course when we back test to check if dividend yield investment strategy works or not we have to base on the dividend and its price sometime ago, then with the share price and dividends received until now we can check if that strategy works or not.

How to check if we are basing on dividend now and share price now. Don't we need time to check?

You always follow blindly, agree agree and agree. But everything I wrote you would disagree, disagree, disagree. You are just like your twin brother here:

[donfollowblindly has left a new comment on your post "Roti Canai” Dividend Yield Investing Strategy My Experience kcchongnz":
Agree with paperplane2 chosen stocks are bias and some stocks DY figure is fake one.
Posted by donfollowblindly at Oct 27, 2015 03:28 AM]

And also where is your triple, truthseeker1 or something?

I think you have a quartet brother too, what f or something
28/10/2015 13:01
paperplane2 When did I disagree most of time? I agree with you on vs, and agree with OTB view also
28/10/2015 19:12
paperplane2 Pls talk with fact
28/10/2015 19:13
kcchongnz Posted by paperplane2 > Oct 28, 2015 07:12 PM | Report Abuse
When did I disagree most of time? I agree with you on vs, and agree with OTB view also

Posted by paperplane2 > Oct 28, 2015 07:13 PM | Report Abuse
Pls talk with fact

Are you talking to me?

Was I talking to you?

Are you having the nick names of I_like_dividend, donfollowblindly, truthseeker1 and what f which I referred to?
28/10/2015 19:33
paperplane2 Walao, so many copy paste I also confuse. Sorry kc Chong nz.
28/10/2015 19:38
CFTrader In mathematical way of concluding the type of return, I categorize the return into 4 order.

1st order : Capital Gain. You gain only once. Most of the people include me, trying to invest for capital gain. Of course, capital gain appreciation is very very attractive, it ranges from 10% to 300% and some even 1000% in short period of time.

2nd order :Stagnant Dividend. Stagnant means unchanged. For example, prior years, MAXIS announced 40c dividend annually.

3rd order : Dividend with AP. Arimethic increament of dividend. This year is 5c, next year 6c, next next year 7c ...

4th order : Dividend with GP. They grows tandemly with a GP way (annual 5% as example)
29/10/2015 14:26
CFTrader Let me quote some example base on Kcchongnz article.

“The share price will go up because of the growth in dividend. The dividend of Apollo was 7.4 sen in 2008 when it was trading at about RM2.50. The dividend yield was 3.0%. Its dividends has increased to 25 sen now and at RM4.98, an even more attractive DY of 5% when the share price has risen by 100% in 7 years, or a compounded annual growth rate of 10%.”

The dividend of Apollo had increase from 7.4c to 25c, and the price grows from Rm 2.50 to Rm 4.98.

The true value lies when you bought the stock at Rm 2.50, and enjoying 25c dividend. That's a 10% annual return, and not to mention that you have capital appreciation in your hand.

Note that the capital gain is NOT include as profit, AS long you doesn't sell it in the market.

What if the dividend grows from 25c, to 35c ?
29/10/2015 14:30
CFTrader One of the rule in share investing.
Paper profit is NOT considered as profit.
Paper loss ALWAYS considered as loss.
29/10/2015 14:30


 

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