Highlights

THE INVESTMENT APPROACH OF CALVIN TAN

Author: calvintaneng   |   Latest post: Sat, 15 Jun 2019, 3:25 PM

 

WHY IS DIVIDEND SO IMPORTANT? From Dr Neoh Soon Kean's STOCK MARKET INVESTMENT (Comments by Calvin Tan)

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WHY IS DIVIDEND IMPORTANT?

Dividend is important for many reasons. The most important reason has been explained a chapter earlier on, that is, dividend is the only benefit which a shareholder can obtain from a company under the normal circumstances. Profit, per se, is hardly of any use to him directly and the assets are only of value if the company is liquidated which is unlikely in a great majority of cases. Apart from this reason, dividend is important for the following reasons:

1) Dividend is a sure thing.

All too often, investors and speculators pay too much attention to profit forecast. It is amazing that so many malaysian companies have the courage to make profit forecast for many years into the future. What is even more amazing is that so many of the investors seem to believe these forecasts absolutely. It is difficult to make a profit forecast a year ahead, let alone five years or even ten years. Such profit forecasts can only be regarded as extremely shaky.

Let us take a recent example. During 1981, when the "property injection game" was at its height, many of the companies which were first getting into property development business gave very rosy forecasts of future earnings potential, as a result the price of these shares naturally went up to tremendous heights. Since then, the housing market softened considerably and the office rental market has declined 40-50 per cent. In just three years, the profit picture of just about all land development companies has changed considerably. I wonder how many of those forecasts made in 1981 can still stand up to scrutiny today.

Dividend is real and it is something which the shareholders can put to some use. Most companies keep dividend at a level they can afford to pay out irrespective of whether it is a good or bad year and is hence a great deal more certain than profit forecast.

 

2) Dividend provides a link with reality.

When the market is truly 'hot',  few of us can keep truly rational and we tend to be swept along in the general atmosphere of optimism. But the dividend yield of a share keeps us in close touch with the real world. As in the earlier example of OCBC, anyone who keeps his eye on the dividend yield of that share would have realised that the price level was totally unreal. Most people would agree that at a dividend yield of 0.4 per cent it would be better to sell a share and invest the proceed in houses or leave the money in fixed deposit.

In the established stock markets of the world, the dividend yield (ie dividend per share/price per share) usually has a steady relationship with the fixed deposit and its interest rate. It is normal for dividend yield to fluctuate at around 1/3 to 1/2 of the long-term deposit interest rate. This means that when fixed deposit interest is around 10 per cent per annum, stock should sell at a price to provide a yield of 3 per cent to 5 per cent. Taking a look at the yield provided by local shares during bull markets, the dividend yield is usually so low as to be meaningless. Futhermore, one should not forget that fixed deposit of 15 months or longer and fixed deposits in National Savings Bank are interest free in Malaysia while dividend has a witholding tax of 40 per cent applied at source.

 

3) Dividend provides a 'floor' for shares during bear markets.

 

Stock markets of the world, especially the Malaysian/Singaporean market is not readily predictable. They can collapse so easily into a 'bear pit' with little warning. If we wished to protect our hard earned capital, we must be defensive in our investment approach. One of the best defense is to buy shares with reasonable dividend yield (i.e. a yield of between 1/2 of deposit interest rate). If we buy a share because it pays a reasonable dividend, our loss is likely to be small even during periods of sharp market decline.

For example, we can buy a share which pays 30 cents dividend at Rm5.00 a share and this gives us a dividend yield of 6 per cent. If the share market goes into a sharp decline, the amount this share can fall to is limited by the fact that it pays a 30 cents dividend. If the price is to fall to as low as Rm3.00, it will be giving a dividend yield of 10 per cent which is about as good as what one can get from fixed deposit but with the additional opportunity to capital gain thrown in.

Most people can see that at that price, the share is probably a good bargain and it is therefore unlikely to fall any lower.It has been my experience that with the exception of mining counters, a dividend yield of 12 per cent seems to be the floor below which most stocks will not drop. In sharp contrast, shares which pay low or no dividend at all do not seem to have any bottom and price decline can hit 90 per cent or more.

 

4) Dividend yield prevents investors from being side-tracked by irrelevant events.

The Malaysian/Singaporean stock market can be characterised by a large number of events which are of little real benefit to the existing shareholders and yet which excite them greatly. I am referring to the large number of bonus announcements, rights issues, property injections, take-overs, and mergers which have made their appearance in recent years. Most of these events are of little, if any, real economic benefit to the existing shareholders of the companies involved.

Despite this, the price of the shares of a company involved in an event of this nature tends to rise sharply. Later chapters will explain in detail why these events are, in the main, irrelevant and some of them may even be damaging.

For the moment, let us consider the following. According to the dividend yield approach to share valuation, a share can have increased value only if there is a likelihood that its dividend will rise faster than originally expected. We ask ourselves in what way events like bonuses, rights, mergers and re-organisations in themselves can improve the future dividend picture of a company. If these events cannot lead to such an increase, the share surely does not deserve a higher valuation.

It is hoped that readers are, by now, at least partially convinced of the wisdom of buying a share for its dividend. In later chapters, the range of dividend yields which is reasonable for different categories of shares will be examined. In the meantime, I leave you with a short ditty that has been popular for years in the US and is still often quoted as advice to first time share buyers.

 

              A cow for its milk,

              Bees for their honey,

              And shares, by golly,

              For their dividend.

 

The above passage is taken from the book "STOCK  MARKET INVESTMENT" in Malaysia And Singapore

By Dr . Neoh Soon Kean of Dynaquest Sdn Bhd (pp 148 to 150) Published in year 1985.

 

May I add more to Dr Neoh's article

 

5) Great Investor Warren Buffet Invests in SEE'S CANDY for its dividends. SEE'S CANDY 20% DIVIDEND were used to invest in other Great Stocks

At the depth of the subprime Crisis Warren Invested in Goldman's Preference shares with 10% dividend

This has Made Berkshire Hathaway the best performing fund for the longest length of time

 

6) MY JOHOR SIFU INVESTS IN DIVIDEND STOCKS BY AVERAGING DOWN HIS COST

(Note: Not averaging down fallen share price but averaging down his holding cost by deducting dividend from capital through the years)

It's like this

BUYING PIE AT RM1.00 For example. And deduct  15% to 20% dividend every year so

Rm1.00 - 15 sen

Cost 85 sen

Next year dividend 20 sen

So cost drops to 65 sen

Then the third year another 15 sen dividend

So holding cost is 50 sen

(This is only an illustration)

THIS IS HOW HE AVERAGES DOWN HIS HOLDING COST BY DEDUCTING OFF DIVIDENDS

IT FEELS VERY GOOD HOLDING STOCKS THROUGH MANY MANY YEARS TO HAVE GOTTEN BACK ORIGINAL CAPITAL BY WAY OF DIVIDENDS

 

7) BY BUYING INTO DIVIDEND PAYING SHARES DURING GREAT PANIC TIME WILL SPRING GOOD SURPRISES

Example is buying Pm Corp at bottom of 7.5 sen in a time of panic

Later Pm Corp gave an 8 sen Cash payout

So 7.5 sen - 8 sen  equals -5 sen

 

OR PM CORP IS FREE WITH EXTRA HALF SEN PROFIT

When Pm Corp gave 8 sen Cash Payout we Got back the original capital of 7.5 sen Plus extra half sen free

AND FREE PM CORP SHARES FOR FOREVER

 

Example 2

Buying Opcom after Lehman Brothers' Crisis at 30 sen

Opcom after getting Rm359 Millions Job award from TM gave out a Special Dividend of 22.5 sen

Next year another tax free dividend of 10 sen making it a total of 32.5 sen

SO OPCOM IS NOW FREE FOR FOREVER PLUS 2.5 Sen Extra

 

THIS IS THE REASON WHY DIVIDEND IS SO IMPORTANT FOR LONG TERM WEALTH BUILDING

 

Now see this

Calvin comments:

According to Dr. Neoh, "A dividend yield of 12 per cent seems to be the floor below which  most stocks will not drop".

In the Deepest Depth of the Lehman Brothers' Crisis after Bear Sterns & Lehman Brothers both gone bankrupt Warren Buffet bought into the safety of Goldman Sachs' Preference shares with guaranteed 10% yield.

Now take heed to Dr. Neoh's warning, "In sharp contrast,  shares which pay low or no dividend at all do not seem to have any bottom and price decline can hit 90 per cent or more".

The characteristic of past bear markets like the Tulip Mania, The South Sea Bubble, The Great Depression of 1930s in USA, the Stock Market Rout of Asian Finacial Crisis in 1997/8 and The Lehman Brothers' Debacle of 2007/8 have witnessed many stocks & index crashing up to 90% or more.

SO LISTEN! LISTEN!! LISTEN!!!

Speculative & Non Dividend High Flying Popular Stocks Might Fall by A Whopping 90% During Bad Bear Markets or in a Crisis

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  2 people like this.
 
enigmatic [Breaker of Speculative Investing] good sharing of Dr. Neoh's dividend investment approach. Burning question today is: Can this approach be used from today onwards,now that Wall Street has caught a cold?
18/12/2018 2:58 AM
BN_better MRCB-die under PH. What else-J Tiasa, WTK, CBIP, JCY and many more.
18/12/2018 5:43 AM
Bruce88 No need to repeat the same art. many many times..
18/12/2018 8:05 AM
calvintaneng Good morning

SS Loh as usual clicked likes
Thks
18/12/2018 8:18 AM
calvintaneng Bn better?

Short term gain but long term will be bankruptcy like Venezuela under BN

All stocks you mentioned have good fundamental except for jcy which is facing Ssd
18/12/2018 8:20 AM
calvintaneng Bruce88

Repetition is the law of learning

Remember our strong foundation as a child we memories the 12 times table by heart

All maths begin with this repeated memorizing mentally. Since Chinese are good at word pictures China excel

- = 1
- - = 2
--- = 3

Now let all remember THE UTMOST IMPORTANCE OF DIVIDENDS AND THE LONG TERM COMPOUNDING OF INTEREST WHICH IS THE EIGTH WONDER IN THE WORLD

AND MORE

CALVIN HAS ADDED 3 MORE POINTS

5. SIFU WARREN BUFFET'S EXAMPLE
6. MY JOHOR SIFU EXAMPLE
7. MY OWN EXPERIENCE IN PM CORP AND OPCOM
18/12/2018 8:27 AM
calvintaneng Enigmatic

This approach is all the more important AS A FORM OF STRONG PROTECTION since we might face an uncertain 2019

Since how TA is supported at 65 sen

THE price Tony willing to take it private

Its Value already determined at Rm2. 60

It gave 4.1% Dividend this year. Similar dividend expected next year as Capex for building now over. Its revenue from hotels will act as a defensive reit

Now Kayin has raised take over price for SPB at higher price of Rm6. 00

Tony will one day revise higher takeover price for TA just like KAF before

So Dividend yield approach is for all times
18/12/2018 8:34 AM
calvintaneng And remember this warning

Speculative, cyclical stocks with little or no dividend support might fall by 90% from its peak

Examples are

IFCA at Rm1. 87. Now ifca has almost fallen by 90% to only a mere 19 sen

Sumatex was 80 sen. Sumatech fell by 95% to less than 4 sen

Hengyuan was over Rm19. 00 Will Hengyuan falls below RM2. 00?

Jaks peaked at Rm1. 84
Now Jaks only 42 sen and still falling

What about AAX, XOX, Sapnrg, Armada, lionind, sendai and so many others?
18/12/2018 8:48 AM
joetay7 i agree that the best warning is given by calvintaneng.

just stay away from the stocks he recommend as buy.

95% chance will see the stock sink by 50% or more.

lol.......

Posted by calvintaneng > Dec 18, 2018 08:48 AM | Report Abuse

And remember this warning

Speculative, cyclical stocks with little or no dividend support might fall by 90% from its peak

Examples are

IFCA at Rm1. 87. Now ifca has almost fallen by 90% to only a mere 19 sen

Sumatex was 80 sen. Sumatech fell by 95% to less than 4 sen

Hengyuan was over Rm19. 00 Will Hengyuan falls below RM2. 00?

Jaks peaked at Rm1. 84
Now Jaks only 42 sen and still falling

What about AAX, XOX, Sapnrg, Armada, lionind, sendai and so many others?
18/12/2018 9:39 AM
calvintaneng Hahaha

See if

TA Enterprize will sink below 60 sen?

Tony already offered 65 sen to take it private

Conversely bodoh joetay fgv(fraud Governed victim) already fell by 60%
18/12/2018 9:45 AM
3iii >>>>calvintaneng And remember this warning

Speculative, cyclical stocks with little or no dividend support might fall by 90% from its peak

Examples are

IFCA at Rm1. 87. Now ifca has almost fallen by 90% to only a mere 19 sen

Sumatex was 80 sen. Sumatech fell by 95% to less than 4 sen

Hengyuan was over Rm19. 00 Will Hengyuan falls below RM2. 00?

Jaks peaked at Rm1. 84
Now Jaks only 42 sen and still falling

What about AAX, XOX, Sapnrg, Armada, lionind, sendai and so many others?
18/12/2018 08:48<<<<
18/12/2018 11:29 AM
calvintaneng 3iii
Don't belittle Sifu Raider's Hengyuan. At least he bought cheap before it gone up.

You must be careful of padini as China tourists not coming will be bad for padini as well
18/12/2018 11:56 AM
calvintaneng Very good
Patrick 13 also clicked "likes"
Yes.
There are very few genuine value investors

90% are into short term punting and treat bursa as a casino

NO wonder security companies are so profitable

Osk, Hwang, Bj Cap, Hl Cap are taken private!!!
18/12/2018 2:59 PM
K00N Eh... how about your Flagship JTIASA? Borrow to pay Dividend?

and your JCY, .... Dividend Yield 5% (you mentioned it price 52 sen)

Now 18 sen, dividend Yield should've be 12%, right? ,
Oppps... it's 0% dividend yield.
18/12/2018 8:45 PM
K00N Ribu Wang, anything below 50 sen is a sapu, that one never dividend.

Calvin's comments always contradiate his own previous comments.
18/12/2018 8:47 PM
K00N Ans also your infamous 30% dividend yield in PMCORP.

What's 30% interest better than FD. Buy PMCORP
18/12/2018 8:50 PM
calvintaneng How come you so meticulous to search out some bad calls?

What about the more than 70% good and chun chun calls you purposely understated?

Dr Neoh said if 70% calls are good and 30% are lousy it should be ok

THE total net gains will supercede all minor losses

Better wake up
19/12/2018 8:30 AM
i3lurker the net requirement for good calls is only 50.1%

if you are correct 50.1% of the time, you will become a multi-millionaire.

In fact, some had become billionaires just based on 50.1% correct most of the time.
13/01/2019 1:14 PM
joetay2 our calvin happens to be 95% wrong all the time.

so he must be a billionaire to keep on having 95% of his calls making losses.

lol........

osted by i3lurker > Jan 13, 2019 01:14 PM | Report Abuse

the net requirement for good calls is only 50.1%

if you are correct 50.1% of the time, you will become a multi-millionaire.

In fact, some had become billionaires just based on 50.1% correct most of the time.
13/01/2019 3:49 PM


 

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