stockoperator

good read on KC articles.

The first criteria must be the winner and leader of respective industry of utmost good business value.

2014-10-18 15:02

sense maker

Analysis of relationship between share price performance over 5 years should be made against dividend yield over the same period, not against dividend yield in just 2009.

For companies paying dividends, their profitability (current and projected) is a key driver of both their share price performance and dividend amounts which should move in a same direction over a period of time- except for cases like cash preservation for expansion plans.

2014-10-18 16:29

kcchongnz

We are talking about 5 years ago you invested in high dividend yield stocks basing on the dividend and share price then, hoping that you would get a good total return 5 years later. 5 years ago the dividend yield should be based on the price then and the amount of dividend. If not what other price can you base on? Stock price in 2013 which we had no idea in 2009?

But that didn't happen 5 years later as shown in some high dividend yield stocks 5 years ago, because their share prices have gone down substantially now, compared to 5 years ago.

Then it concludes that looking for high dividend yield stocks to invest now, you may be disappointed too as history has shown that there is no evidence to suggest that high dividend yield stocks provided high total return.

2014-10-18 17:19

apini

it seems correct and it also seems not so correct, 5 years same portfolio.
I like dividend but if you do not evaluate your portfolio annually then it seem not so correct. so continue invested into the company that has the cash to pay you dividend. some financial knowledge is a must.

2014-10-18 18:46

sense maker

It is simplistic n not meaningful as the criteria for both dividend paying company identification (a few years to 2009) n subsequent comparison (a few years from 2014) should be made for a period of time to examine any causation or correlation. All variables are dynamic n should be examined as such.

2014-10-18 18:58

aunloke

It works well when we start with new bull.

2014-10-18 19:05

kcchongnz

"(a few years to 2009) n subsequent comparison (a few years from 2014)"

Good point. I like simplicity. But I would be happy to see how your analysis is.

2014-10-18 19:05

sense maker

Subsequent years from 2009, not from 2014. Typo. I don't have much patience to make presentation like you kcchongnz.:d

2014-10-18 19:12

kcchongnz

For simplicity I did take a short cut to assume a holding period of 5 years, for the dividend yield 5 years ago based on the dividend and share price then. Investors don't invest based on dividend yield in the past like 6 years, 7 years or 10 years ago from 2009. They would base on the present dividend yield then.

Of course it would be better if we adjust the portfolio at the end of each year and readjust the portfolio to select those high dividend yield stocks every year. That is definitely the right way to do, but I prefer to leave it to you to do it. I am not doing an academic research.

2014-10-18 19:20

hng33

kcchongnz

Agreed, buy high dividend stock should mitigate volatile market risk, especially when these stock is on weakness in line with market, offering even better dividend yield. However, in the short term, high yield dividend stock can't perform well due to market condition, investor at least rewarded with stream of dividend and indirectly reduce holding cost, without a need to cut loss.

Some of these stock even offer to payout dividend quarterly, like Bjtoto and Magnum. No doubt, with high living cost, impending GST, it will also affect these company, but at least these company is relatively defensive due to nature of their business.

2014-10-18 19:26

kk123

When market is down high dividend is useless also as loss is much more haha

2014-10-18 19:32

kcchongnz

hng33,

Good points.

I would agree with you for Magnum, but for BJtoto, it is a disaster. Look at the total return chart for BJtoto from Yahoo Finance you will understand what I mean.

http://finance.yahoo.com/q/bc?t=5y&s=%5EKLSE&l=on&z=l&q=l&c=1562.kl&ql=1

2014-10-18 19:37

sunztzhe

In a volatile market, it is better to be opportunistic and nimble than be sorry. In a benign market , high dividend yields is good investment but in reality does benign market exist at all times in the world of stocks? The low beta high dividend stocks in benign market can also transform into medium or high beta stocks in volatile market if earnings, roe,roce, roic disappoints. In essence there is no such axiom as "sure win strategy at all times with high dividend stocks" but there is an axiom at all times in "the pursuit of preservation of capital."

2014-10-18 20:06

sense maker

The mechanism should be this:

One looks at dividend yield, ratio and policy for past few years to establish if the management believes in paying out good dividend on a sustainable basis throughout the period. Importantly, one should prefer a company that pays high dividend yield and yet maintains a low dividend over profit after tax ratio, which represents a potential higher dividend payout in future and current low PE.

Once shortlisted, one buy stocks based on the companies' projected profitability which determines both future the share price and dividend.

2014-10-18 20:12

hng33

One of the reason company opt for high dividend is due to its business model, offer very limited growth prospect or expose to highly regulated business such as Power, telco, NFO. For instance, YTLP nowadays declare almost all of its financial earning as dividend, presumably due to company outed to involve project 3B power project, less capex require prompting YTLP to resume high dividend payout.

But, the sustainability of the company to keep payout high dividend yield is still subject to availability and recurring stream of profit from their core business. Beware, some company when declaring 'special dividend' due to one off assets disposal or one of reward accumulated earning.

2014-10-18 20:31

hng33

Another question is, how high the dividend yield is consider high ?

Is the benchmark return a year should against 12 month FD, Bond yield, EPF dividend or unit trust?

2014-10-18 20:39

sense maker

It is relative.

For companies experiencing and projecting high growth in profits and has big economic moats, investors should tolerate a lower dividend yield. E.g. >3.5%

For companies with rather more volatile earnings, investors normally demand a "dividend premium". E.g. > 5%

2014-10-18 20:48

apini

Anyhow I want to give you many thumb up for you hard work and sharing.TQ

2014-10-18 21:07

stockoperator

common sense telling us that there is No point in the market for the dividend given the market volatility.

Good dividend must come with long term growth and Good Business value and stable business model.

2014-10-18 22:05

sense maker

The recent correction is a result of re-pricing of risks in all risky asset classes including equity market, stemming from the spectre of rising interest rate pursued by FED which douses valuation. In valuation exercises of any kind for biz, companies, assets, financial instruments, etc, higher interest rate means lower fair value.

Expected Return on shares which comprises capital gain and dividend yield is rising in tandem with cost of borrowing (i.e. interest). Dividend remains as relevant as ever no matter what the investment climate we are in.

2014-10-18 22:15

stockoperator

Dear sense maker,

it is going to surprise investor that the expected return could be dividend yield minus capital gain. We know many reasons for this to happen.

2014-10-18 22:25

stockoperator

The selection criteria must follow the sequence of A B and C.

But it is so hard to find business with good value and long term growth, and we have no patience to hold forever, so what do we do in short term?

Lets go for High yield. Lets go for company below net asset value.Lets go for turnaround stories. Lets go for transformation. Lets go for a wild ride. Let's go for Trading.

2014-10-18 22:31

stockoperator

Correction is always of mismatch of Supply and Demand.

In recent case, the supply is flooded such as big IPO, Bonus issue, Right Issue, Oil discovery, Big shale gas supply, good palm harvest and new plantation in africa and so on. Well the demand is expected to be sluggish due to national debt, Ebola, GST, Rate hike and so on. So there is a mis match ya.

2014-10-18 22:38

stockoperator

Having said that Big supply with slower growth expectation might provide low cost environment for Business.

And we would not have another price shock and high inflation when demand picks up as happened in 2008-2009 when crude spikes to USD120.

I see positives in all happened for long term Good.

2014-10-18 22:46

sense maker

The boom and bust is part of an economic cycle of allocating resources efficiently. With QE, first introduced in 2008, the rules of the game changed forever as a floor could be artificially and promptly inserted by FED whenever needed, and a L shape recovery was then easy to envisage. And so it turned out to be and we did not see any major correction in the past 5 years. What we have seen since is manufactured inflation (to avoid deflation) that causes stagflation as economic excesses were not quickly pared back, rising risk appetite, soaring asset prices and the resultant social inequality on a world-wide basis. Euro will pump enough money to avoid deflation and China will stage a managed property price reduction, while Russia has been and will likely be set back financially seriously for a long time. As for Malaysia, if economic reforms continue to be deferred, Ringgit will languish as the economy cannot take another interest rate hike by BNM. So, in short, stock picking skills will count more than ever as some share prices are now trading at lofty levels and would crash if earnings disappoint in the future. Companies that perform well in the past year mainly benefit from falling raw material prices while maintaining reasonable degree of pricing power. Interest is to risky assets what oil price is to raw material costs. In 2004 when interest rate rose, equity corrected 20% but then was a conventional time. With QE-forever, a severe correction of say 40% is really unlikely and rebound will come faster if it happens.

2014-10-18 23:08

sunztzhe

The recent market correction was indeed a re-pricing of risks in a slowing global economy in anticipation of credit tightening by the FED with interest rate increase hence dousing valuation. It is very obvious that any credit tightening measures wont be good for stock valuation. Of late it is not a certainty that QE will end in view of the slowing economy and consequently a de-pricing of risks is taking place. I would focus on
- will the FED dealy tapering as world economy slows
- will ECB and Germany aggressively QE.
- will the Euro depreciate to 1.15 to 1.10 USD as a result of aggressive QE by ECB?
- will ebola be contained(the general expectation is it will be)
- will crude oil stabilize at USD 80 - USD 90 per barrel
- will China's economy improve

de-pricing of risk indeed is already happening since last Friday and barring any explosive outbreak of ebola, the stock market will resume its upward climb in Q4 2014 into 2015.

2014-10-18 23:08

stockoperator

Wah somebody name plate is shining at my eyes.

2014-10-18 23:08

sunztzhe

The light shined forth and darkness disappears at an instant..hahahahah

2014-10-18 23:13

stockoperator

ya ya I can see that it is a sun behind. Luckily i am not a dracula.

2014-10-18 23:15

sunztzhe

So what will be your decision?
- go for High yield
- go for >50% discount below net asset value
- go for turnaround stories
- go for transformation
- go for a wild ride
- go for Trading
- keep cash in bank and wait for market to kaput

I welcome your valued input on the above decision choices with stock recommendations except waiting for market crash hahahahaha

2014-10-18 23:25

JXRepcoBuffet

f

2014-10-18 23:25

stockoperator

well i decide to make myself a name plate first to attract all good lucks and chase away all bad lucks.

2014-10-18 23:29

sunztzhe

.. better go chase after all the female draculas hahahahahaha

2014-10-18 23:34

stockoperator

Dear Sun, shine for me everywhere that i go.

2014-10-18 23:35

sunztzhe

No I shan't
Go where darkness reigns , where the draculas are and where no one dares to go
You shall enjoy the fruits of your labour using high hurdle rates of investment in identifying G spot stocks that thrills you to the hilt..hahahahaahha

2014-10-18 23:40

stockoperator

i will smell my way to the company where there is lots of cash. Good smell and cash is shining like a Sun.

2014-10-18 23:55

sunztzhe

Better do all the smelling to your heart's fulfillment. Just don't part with your cash though hahahahahaha

2014-10-19 00:01

kcchongnz

Posted by hng33 > Oct 18, 2014 08:39 PM | Report Abuse
Another question is, how high the dividend yield is consider high ?
Is the benchmark return a year should against 12 month FD, Bond yield, EPF dividend or unit trust?

When we talk about high dividend yield investing strategy, of course the higher the dividend, the better because that is the essence of the strategy. I would think the rate must be equivalent to FD rate. You can’t put money in EPF as you wish to earn that higher return. Bond is not easily purchased by retail investor in Malaysia. Bond fund? Be aware that it is a risky assets which is correlated with interest rate and interest rate is likely to rise in the future which is detrimental to bond funds. Unit trust? I don’t have trust that it will give you a fixed income.

But bear in mind that high dividend payment has a cost to shareholders. A high pay-out ratio will results in low retention ratio, which in turn stifle growth. For a company at a stable growth stage, all companies will eventually reach that stage, the growth rate is related to the following:

Expected growth rate in Equity income, g = Retention ratio x Return on Equity (ROE)

The higher the pay-out ratio, the lower the retention ratio and hence the lower the expected growth

You can see the other factor is the return on equity, ROE. So theoretically the most crucial factor is how the return on reinvested capital, not growth in earnings.

A company can borrow an additional 1 billion and makes 2% from this borrowing and still grow its earnings by 20 million each year. But is this good for shareholders?

A higher retention ratio actually doesn’t guarantee success too if the return on reinvested capital is below its cost of capital. Instead it is a value destroyer.

2014-10-19 05:26

sunztzhe

So what will be your decision?
- go for High yield
- go for >50% discount below net asset value
- go for turnaround stories
- go for transformation
- go for a wild ride
- go for Trading
- keep cash in bank and wait for market to kaput

2014-10-19 08:50

AzmiMerican

Saya tahu you are doing a study, but in real life using just one constant criteria in the ever changing share market which is affected by many variables mana boleh??

In real life one mesti check one's portfolio every week if not day kan... mana boleh tunggu dapat dividend payment dulu only decide nak jual ke apa ke when it is obvious that a market correction is coming. .


I think if you want to study dividen it is more relevant and close to real life to study "Is it a good idea to buy into high dividend stock in a crashing market to survive better while waiting for market to recover?"

Saya punya opinion, based on the few high dividend cos that have been delisted that you can apply have been excluded in you punya list, I think no lo

2014-10-19 09:08

AzmiMerican

Mungkin over a shorter time frame, 1 2 years not 5 years.

You chase the dividend, announced je you beli until dapat dividend tu, then you chase the next company for its dividend macam ni. But even macam ni kan the share price akan adjust downward selepas payment of dividend? Ada gain ke??

Lagi pun dividend policy banyak yang tak jadi, cakap je.

2014-10-19 10:39

rlch

Reit dividend policy must be at least 90% profit, if not not qualified as Reit. Reit is like owning property and collecting rent minus the tenants issue.

2014-10-19 10:54

bsngpg

Some people apply High Dividend Strategy in these ways:

Criterion 1: Is the management RELIABLE? (Follow up quarterly reports, press releases, interviews, ARs, analyst reports, news about the company etc.)

Criterion 2: Past trend of company’s PROFITABILITY and forecasted profitability.( need to understand the industry, company’s plans/vision and the company’s competitiveness etc)

Criterion 3: Trend of the past GROWTH and forecasted growth prospect. (need to understand the industry, company’s plans/vision and the company’s competitiveness etc)

Criterion 4: Is BAL. SHEET healthy? (net cash ? debt level etc)

Criterion 5: Is the share traded at attractive PRICE ?(PE, self-judgment if it is fair or overvalue based on type of industry, size of company, market sentiment and self-experience etc)

Criterion 6: Then only come to the last thing-DIVIDENT Policy, past record on yield, forecasted yield. The high div yield is normally defined in the range of 4.5 - 7% at the time of purchase.

2014-10-19 12:03

lcwin

In a bull mkt, Risk premium is low so All sorts of Stocks will fly just look at our mkt now salted fish is swimming, over price warrant is being chase up like mad. In fact during these time best strategy for me is look for low volume stock with a bit of turnaround story and wait.So far it work well.I don't bother with good dividen as most of these will be highly priced so upside is limited.
So if you ask me we are still in a bull mkt stage. Liquidity is at all time high after the round of properties speculation so these money have to go somewhere ( Bursa of course!)

2014-10-19 13:05

sunztzhe

bsngpg, I know how some people will decide but How will you decide?

2014-10-19 14:18

sunztzhe

lcwin, Thanks for sharing your input. For me I will go for
- turnaround stocks
- stocks that is bombed out but with improving fundamentals
- stocks with fresh catalyst
- dividends is not my main criteria but capital appreciation is.

2014-10-19 14:21

AhMoi

TUAJAYA. ... IS THE STOCK, BUY!

- turnaround stock YES
- stock that is bombed out but with improving fundamentals YES
- stocks with fresh catalyst YES

HELL, TUAJAYA EVEN HAS HIGH DIVIDEN YIELD TO BRAG NOWADAYS AT 3 SEN PER QUATER 0.12/2.00 = 6% PER ANNUM


TUAJAYA. ... IS THE STOCK TO BUY



http://klse.i3investor.com/servlets/stk/5085.jsp

2014-10-19 16:06

sunztzhe

The recent market correction was a re-pricing of risks in a slowing global economy in anticipation of credit tightening by the FED with interest rate increase hence dousing valuation. It is very obvious that any credit tightening measures wont be good for stock valuation. Last Friday, it was not a certainty that QE will end in view of the slowing economy and consequently a de-pricing of risks is already taking place. Rather than predicting a dead cat bounce and waiting for it, I would rather focus on
- will the FED delay tapering as world economy slows, how long will the delay be
- will ECB and Germany QE aggressively.
- will the Euro depreciate to 1.15 to 1.10 USD or even parity with USD as a result of aggressive QE by ECB?
- will Germany's and the European economy rebound with a weakened euro?
- will ebola be contained(the general expectation is it will be)
- will crude oil stabilize at USD 80 - USD 90 per barrel and how would the major producers decide
- if the European economies rebound, what will be the price of crude oil then?
- will China's economy improve

A de-pricing of risk indeed had already happened since last Friday and barring any explosive outbreak of ebola, the stock market will resume its upward climb in Q4 2014 into 2015 if the above scenario pans out gradually.

At this stage, I will long stocks.

2014-10-19 22:21

sy1226

The investment banker that told you that......not licensed to advice retail/priority/private banking clients

2014-10-20 14:07

kcchongnz

Posted by sy1226 > Oct 20, 2014 02:07 PM | Report Abuse
The investment banker that told you that......not licensed to advice retail/priority/private banking clients

You are right. But you know what? Even licensed advisers with Bank Negara who are Financial Adviser Representative (FAR), or with Security Commission who have Capital Markets Services Representative’s Licence (CMSRL), most of them will give you the same advice, ie borrow and invest.

First they probably get more commission if you borrow and invest more as they charge by asset under management (AUM). Understand the agency problem. Or they just can't fathom the peril of leverage in investing. They are not trained academically,neither are they trained in their company about this stuff which is detrimental to the well being of the company they work for.

Scary but it is true. How I know? No need to ask this question. Ignore what I say at your own peril.

2014-10-21 19:47