Fundamental Investing
Dividend Investing?
Recently, the effectiveness of dividend investing over long period of time have come into question. Some believe it does not work in KLSE. Others believe it work wonders for them. Now I'm not a fan of dividend investing based on DY, DDM, Dividend payout etc. but rather I'm curious to know if it can really work in our environment. Thus, I have set aside some time to gather some data for some of these stocks below.
Now, to begin, let's assume the following:
1. Timeframe for backtesting is from year 2000 to 2015. I would like to gather from earlier than that but I have insufficient data at hand.
2. We select a few stocks based on cost DY of 4% or more at year 2000. (Why would we invest in a stock giving less dividends than a FD interest rate for dividend investing right?)
3. We exclude any bonus issue, rights issue, share split or share consolidation just to simplify calculations because some stocks have bonus issue or share split a few times over the course of these years. It is too time consuming for me to take everything into calculation.
4. No adjustments will be made for dividend payout or share pricing over the years (see point no.3).
5. Dividend payouts are not re-utilized in any manner.
So let's begin with the first stock, SHL Consolidated:
| Year | Dividend payout per share (RM) | Share Price (RM) | DY to the pricing of that time (%) | Profit (%) | CAGR (%) |
| 2000 | 0.06 | 1.48 | 4.05 | ||
| 2001 | 0.06 | ||||
| 2002 | 0.03 | ||||
| 2003 | 0.05 | ||||
| 2004 | 0.05 | ||||
| 2005 | 0.07 | ||||
| 2006 | 0.06 | ||||
| 2007 | 0.06 | ||||
| 2008 | 0.06 | ||||
| 2009 | 0.06 | ||||
| 2010 | 0.07 | ||||
| 2011 | 0.07 | ||||
| 2012 | 0.08 | ||||
| 2013 | 0.12 | ||||
| 2014 | 0.19 | ||||
| 2015 | 0.25 | 3.12 | 8.01 | ||
| Total | 1.34 | 201.35 | 7.63 |
As you can see, total dividends collected amounted to RM1.34. Plus together with current price of roughly RM 3.12, we get RM 4.46 per share. Now minus our cost of RM 1.48, we get a profit of 201.35% or a CAGR of 7.63%.
Now, moving on to another stock, Spritzer:
| Year | Dividend payout per share (RM) | Share Price (RM) | DY to the pricing of that time (%) | Profit (%) | CAGR (%) |
| 2000 | 0.04 | 0.91 | 4.40 | ||
| 2001 | 0.04 | ||||
| 2002 | 0.025 | ||||
| 2003 | 0.025 | ||||
| 2004 | 0.03 | ||||
| 2005 | 0.025 | ||||
| 2006 | 0.03 | ||||
| 2007 | 0.03 | ||||
| 2008 | 0.04 | ||||
| 2009 | 0.02 | ||||
| 2010 | 0.025 | ||||
| 2011 | 0.025 | ||||
| 2012 | 0.03 | ||||
| 2013 | 0.04 | ||||
| 2014 | 0.04 | ||||
| 2015 | 0.05 | 1.94 | 2.58 | ||
| 0.515 | 169.78 | 6.84 |
Surely not as great as SHL Consolidated, but still managed a profit of 169.78% or CAGR 6.84%.
Next on the list, Lysaght Galvanized Steel:
| Year | Dividend payout per share (RM) | Share Price (RM) | DY to the pricing of that time (%) | Profit (%) | CAGR (%) |
| 2000 | 0.05 | 1 | 5.00 | ||
| 2001 | 0.025 | ||||
| 2002 | 0.02 | ||||
| 2003 | 0.02 | ||||
| 2004 | 0.03 | ||||
| 2005 | 0.03 | ||||
| 2006 | 0.04 | ||||
| 2007 | 0.05 | ||||
| 2008 | 0.05 | ||||
| 2009 | 0.1 | ||||
| 2010 | 0.1 | ||||
| 2011 | 0.1 | ||||
| 2012 | 0.12 | ||||
| 2013 | 0.12 | ||||
| 2014 | 0.5 | ||||
| 2015 | 0.12 | 3.52 | 3.41 | ||
| 1.475 | 399.50 | 11.32 |
This one fared much better than the other 2 with profits of 399.50% or CAGR 11.32%.
Now, we put in a stock with share price that did not increase much, Yee Lee:
| Year | Dividend payout per share (RM) | Share Price (RM) | DY to the pricing of that time (%) | Profit (%) | CAGR (%) |
| 2000 | 0.07 | 1.64 | 4.27 | ||
| 2001 | 0.045 | ||||
| 2002 | 0.04 | ||||
| 2003 | 0.02 | ||||
| 2004 | 0.02 | ||||
| 2005 | 0.03 | ||||
| 2006 | 0.02 | ||||
| 2007 | 0.03 | ||||
| 2008 | 0.04 | ||||
| 2009 | 0.04 | ||||
| 2010 | 0.025 | ||||
| 2011 | 0.025 | ||||
| 2012 | 0.025 | ||||
| 2013 | 0.03 | ||||
| 2014 | 0.03 | ||||
| 2015 | 0.03 | 1.85 | 1.62 | ||
| 0.52 | 44.51 | 2.48 |
Only a miserly 44.51% over such long periods of time, or a CAGR 2.48%! But surely, a well informed investor will have diversified his or her investments, therefore their portfolio might just end up a mixed bag of good and mediocre stocks.
And lastly, just a quick look at Scientex because I ran out of examples:
| Year | Dividend payout per share (RM) | Share Price (RM) | DY to the pricing of that time (%) | Profit (%) | CAGR (%) |
| 2000 | 0.06 | 0.63 | 9.52 | ||
| 2001 | 0.06 | ||||
| 2002 | 0.06 | ||||
| 2003 | 0.06 | ||||
| 2004 | 0.1 | ||||
| 2005 | 0.18 | ||||
| 2006 | 0.26 | ||||
| 2007 | 0.015 | ||||
| 2008 | 0.08 | ||||
| 2009 | 0.05 | ||||
| 2010 | 0.09 | ||||
| 2011 | 0.12 | ||||
| 2012 | 0.14 | ||||
| 2013 | 0.26 | ||||
| 2014 | 0.21 | ||||
| 2015 | 0.22 | 7.67 | 2.87 | ||
| 1.965 | 1429.37 | 19.94 |
Surely this is the superstar among these 5 stocks? A whopping profit of 1429.37% or CAGR of 19.94% over these years!
| Stock | Profit including dividend(%) | CAGR (%) | Cost DY (%) | Current DY (%) |
| SHL | 201.35 | 7.63 | 4.05 | 8.01 |
| Spritzer | 169.78 | 6.84 | 4.40 | 2.58 |
| Lysaght | 399.50 | 11.32 | 5.00 | 3.41 |
| Yee Lee | 44.51 | 2.48 | 4.27 | 1.62 |
| Scientex | 1429.37 | 19.94 | 9.52 | 2.87 |
Table presenting big drops or gains in short amount of time for KLCI:
| KLCI | Points | Points | Change (%) |
| Feb 2000 - May 2001 | 982.24 | 572.88 | -41.68 |
| Jun 2006 - Dec 2007 | 914.69 | 1445.03 | 57.98 |
| Dec 2007 - Oct 2008 | 1445.03 | 863.61 | -40.24 |
| Mar 2009 - Jun 2011 | 872.55 | 1579.07 | 80.97 |
| Jun 2011 - Sep 2011 | 1579.07 | 1387.11 | -12.16 |
| Mar 2015 - Aug 2015 | 1830.78 | 1601.7 | -12.51 |
| 163.07 |
To summarize, we have excluded many factors including split share and bonus issue which will greatly affect the numbers that we can see here. We also exclude another factor such as dividend reinvestment which is essential for that compounding factor. I'm sure there are many stocks out there that we can use as an example but surely even with a bad stock whereby the price falls, a high DY will be able cushion the impact to some extend. And as a smart investor as you are, I'm sure your portfolio is well diversified and rebalanced from time to time (and not full with bad stocks).
On a final note, the reason why I created this post is to test for myself the effectiveness of dividend investing. I am not saying that dividend investing is the way to go, but certainly it does prove to be a viable method in which we can all choose to employ or not. Thank you for your time in reading my first post.
Disclosure: I have previously or currently own some of these stocks.
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6 people like this. Showing 16 of 16 comments
hi kcchongnz, thank you for your comments. As to reply your comment no. 1, I get the output from a CAGR calculator from this site: http://www.miniwebtool.com/cagr-calculator/
Do let me know if the calculator is wrong, thanks!
2015-10-28 17:35
Yes, I checked again and I think my calculations are correct, except I made a mistake for Spritzer which should be a CAGR of 10.4%.
Company Initial price Final price Capital gain Dividend Total gain Gain% CAGR
SHL 1.48 3.12 1.64 1.34 2.98 201% 11.7%
Spritzer 0.91 1.94 1.03 0.515 1.545 170% 10.4%
Lysaght 1.00 3.52 2.52 1.475 3.995 400% 17.5%
Yee Lee 1.64 1.85 0.21 0.52 0.73 44.5% 3.8%
Scientex 0.63 7.67 7.04 1.965 9.005 1429% 31.4%
Average 14.9%
The average CAGR of the portfolio is 14.9%. You could have keyed in some wrong inputs.
2015-10-28 17:42
Use this in your spreadsheet to calculate
CAGR = (EV / BV)1 / n – 1
Where:
EV = Investment's ending value
BV = Investment's beginning value
n = Number of periods (months, years, etc.)
2015-10-28 17:46
kcchongnz Thanks for the formula, but I think your CAGR is calculated based on 10 years, while mine is 16 years. So I believe my CAGR should still stand corrected. Am I right?
2015-10-28 19:48
White Horse is another Very Solid Dividend Paying Growth Stock.
Increasing NTA
Increasing Profit.
Consistent Dividend.
It has the potential like Scientex.
In Jubin Tiles Warehouse, Taman Daya, Johore today the Sales people said that there is huge orders of Both White Horse & Yilai tiles from Pengerang's RAPID Massive Developments.
The competition from China or Vietnam tiles import are negated by
1) Crashing Ringgit Value. Now China & Vietnam tiles are priced 20% to 30% more than Malaysian tiles
2) Both White Horse & Yilai factories located in Iskandar. So cheaper transport cost.
So White Horse & Yilai tiles are selling well as The Massive Condos Project in Johor & Pengerang's RAPID Will Be Using Unheard of Mountains of Tiles in Iskandar!
Expect White Horse To Gallop & Gallop Faster than others in coming years!
2015-10-21 09:46
Why did I think of 10 years?
Yeah, my CAGR calculations are not correct then.
Then the dividend stocks do not seem to provide better return than the broad market.
But that is also because you assumed those dividends received were consumed, and not reinvested in any form. If they are invested, the CAGR would be more.
One way to do is to use internal rate of return to calculate the rate of return.
2015-10-29 03:36
And not to forget that other factors such as bonus issue and share split was not taken into consideration. I would still think of it as a decent return.
2015-10-29 07:12
Will I be using dividend investing solely for my portfolio? No. But with this back-testing result, it gives me an idea to incorporate maybe one or two dividend stocks into my current portfolio especially during these tough times which can be full of uncertainty.
I would like to think of it as part of a 'Margin of Safety' although I know that's not how it really means. At least you can fall back to dividend gains when prices go down south.
14 hours ago
In stock investing...over the long term, the slow and patient tortoise do often beat the quick and haughty hare
2015-10-29 09:55
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kcchongnz
Good work.
I have a few comments
1) I have some different number on CAGR. May be you could check your calculations. Basing on your price and dividend data, my figures are:
Company Initial price Final price Capital gain Dividend Total gain Gain% CAGR
SHL 1.48 3.12 1.64 1.34 2.98 201% 11.7%
Spritzer 0.91 1.94 1.03 0.515 1.545 170% 7.9%
Lysaght 1.00 3.52 2.52 1.475 3.995 400% 17.5%
Yee Lee 1.64 1.85 0.21 0.52 0.73 44.5% 3.8%
Scientex 0.63 7.67 7.04 1.965 9.005 1429% 31.4%
2) The average CAGR is 14.4%, way outperformed the KLCI's (including dividend) CAGR of 9% during the same period.
The 5.4% difference, and compounded over 10 years, makes a hell of difference.
For example, If you have invested RM100,000 into a portfolio of those stocks above 10 years ago, it becomes 384k, compared to 240k if you just invest in the 30 stocks in KLCI.
3) If you compute the future value of dividends to year 10, say just put in FD at 3%, the CAGR will be more.
Dividend yield investment strategy does seem to work for your stocks too.
2015-10-28 17:17