I am never a fan of dividend investing. Whatever dividend the company declare, the share price is always going to correct after the ex date. Dividend investing is for the real corporate investor who wants to extract cash out from the entity to pay their dues. Dividend income for a retail investor like you or me, is not the most efficient way of investing. Because the reinvested dividend is going to incur some transactional costs. Having said that, there are of course successful dividend income stories on the bourse, namely; Nestle, BKAWAN, GAB etc. For small cap companies which has a high cash hoard, it is best for them to declare dividend, if not the cash is going to sit there doing nothing till one day the management decides to to do a buy out.
Well said Flintstones, in Bursa, only Mat Salleh funded and managed companies are worth the dividends investment philosophy. Companies such as Carlberg, GA, Dlady,Nestle,UP etc...For Malaysian run companies, generally, you can forget about it...As you said, they rather keep the cash and later buy out for their grandchildren..eg Deloyd, may be KS etc...
Warren Buffett often looks at the stock he buys as equivalent to a bond. The cost price for the stock is the 'equivalent' to the price paid for a bond. The earning yield of the stock is the 'equivalent' to the coupon rate of a bond.
He likened his stock as equity bond. Unlike a bond that pays a fixed coupon rate for its lifespan and repayment of the initial invested capital, an equity bond (stock) if chosen well, can deliver increasing earnings (and dividends) over many years. Its share price likewise will appreciate with its increasing earnings.
The trick in dividend yield investing is still to focus on the earnings and earnings growth potential of the company. All these are embodied in a simple phrase, that is, choose and only invest in good high quality companies bought at bargain or fair prices.
It is a measurement of how much a company can grow using internal generated funds. That’s why positive free cash flow (FCF) concept is vital, the ideal case is when FCF (operating cash flow minus capex) is sufficient to pay dividend. Else it needs to monetize asset, secure more commercial borrowing or raise fund through right issue to facilitate growth. Net profit must be based on core business earning less one-off and unrealised fair value gain or loss.
In order to improve ROE, business needs at least one of the followings: ROE = Net profit/Revenue x Revenue/Total Assets x Total Assets/Equity 1. Increase assets turnover ratio by generating more revenue with optimum assets employed. In other words, managing of working capital such as inventory, receivables and payables to lower the cash conversion cycle. Ensure optimum utilisation of PPE capacity.
2. Source for cheaper leverage and match loan tenure with investment gestation period. If possible, loan drawdown according to requirement.
3. Lower income taxes by reducing lumpy non-deductible expenses, take advantage of tax incentives etc.
4. Improve operating margin through tighter cost control.
5. Sustainable free cash flow to support dividend payment.
Trend analyses of the above factors are important to understand what make the business tick.
Price to book ratio is also vital to gauge whether the business is over or under value.
Assuming a stock with a book value of RM 1 per share and its share price is also RM 1 (Price to book value = 1.0). A 12% ROE will produce 12 cents per share return for the investor (P/E of 8.3). If the payout ratio is 50%, investor will get 6 cents/share as dividend and the remaining 6 cents will increase the book value of the business and should reflect in the market value of the business (technically speaking if the business can continuously achieve 12% SGR). In order words, the total shareholder return (TSR) will be 12% (6% dividend yield + 6% capital gain).
Alternatively, if the stock price is RM 1.50 per share (P/E of 12.5), the investor will still receive 6 cents per share as dividend. But in this case, the yield is only 4%. The book value of the business will similarly increase by 6 cents to RM 1.06 but the market value will increase by 6% to RM 1.59. TSR in this case will be 10%.
The situation will be reversed if the investor bought at a price below book value – said at RM 0.80 per share. The dividend yield will be 7.5%, plus a 6% in capital gain, the TSR is 13.5%.
Debt to equity ratio (=<50%) should read in conjunction with interest coverage ratio (>=2) and net debt position (ideally net cash).
If the business can consistently deliver superior ROE and support a decent dividend payout ratio, the factor that determines the future TSR is PBV or P/E ratio.
But this kind of strategy.....you have to be accompanied by a portfolio with at least 20 stocks. Because, many of your stocks will just sleep and sleep and sleep. You will not lose money but you will lose time.
Occasionally, some in the portfolio will have good volume for two or three days. You should automatically sell it. You will get 5 - 10% gain this way. A 10% gain a portfolio of 20 stocks, the impact on the portfolio is 0.5%....you need 10 of that per year to show a 5% gain per year.
Its a slow grinding process. Probability of success very high but you will miss the big gainers.
a good business run by good honest people , if you buy when there is no volume, you are a contrarian. Buy when no one is interested. Then, complete the equation by selling when other people wants it.
safe slow grinding strategy....but you should have a portfolio with 20 stocks or more.
This article had given a very BAD impression of "Div investing" KC should use his knowledge & experience to show readers what is a "Good div investing".
The only permanent in universe is impermanent. There is no exception in the world of investment!
The underlying fundamental in business keep changing in tandem with changing conditions in the marketplace; thus affecting the earning pillar of company.
You got to know that investing in dividend stock is you accepting the fact there is a limitation in earning growth potential in that company. You got to accept the fact that the risk inherited in the dividend stock begins to emerge when the earning stability is disappearing.
You can uncover the myth of dividend stock If you command the comprehensive knowledge in the industry. This will allow you to align your investment strategy in line with the competitive condition in that company.
Ultimately, you never do nothing with dividend stock when the underlying earning is threaten.
When there is no constant earning, there will be no constant dividend !
Posted by Bruce88 > Jan 16, 2017 09:03 AM | Report Abuse This article had given a very BAD impression of "Div investing" KC should use his knowledge & experience to show readers what is a "Good div investing".
This article reminds one not to blindly invest using any strategy, including dividend investing. The underlying message is in the last part of the article,
" Does it mean that investing in high dividend stock is a myth? Not at all. On the contrary, I found it is one of the best investing strategies to obtain consistent long-term return with less risk.
This is provided investors have a check list of how and what to look for to separate the chaff from the wheat. That will be the next topic of discussions."
Posted by R3D3 > Jan 16, 2017 09:36 AM | Report Abuse Chong: It would have been much better if you had focus on the risk of dividend investing.
ME: DIVIDEND INVESTING IS ACTUALLY A LOW RISK STRATEGY COMPARED TO OTHER STRATEGY, ESPECIALLY APA ITU DYNAMIC INVESTING, "PIVOTAL MOMENT CONCEPT" AND ALL THAT JEST.
Dividends, are largely determined by the company board of directors and is influenced by the company profitability. No money, no honey. Hence, dividends is not a constant factor.
ME:NOTHING IS CONSTANT IN INVESTING. BUT IT IS MORE PREDICTABLE FOR SOME COMPANIES, THEN OTHER PREDICTIONS.
* eg. how many people make many assumptions that their dividends is cast in stone?
ME: THAT IS WRONG. NOTHING IS CAST IN STONE, FOR ANYTHING IN INVESTING, NOT ONLY DIVIDEND.
The dividend yield is determined by two variables which are not constant. The price of the stock is not constant and neither is the dividend.
ME: DIVIDEND IS A LITTLE MORE PREDICTABLE FOR COMPANIES WITH CONSISTENT EARNINGS AND CASH FLOWS. THERE ARE SOME STOCKS HAVING THAT CHARACTERISTICS.
PRICE IS OF COURSE NOT CONSTANT. IN FACT, IT CHANGES EVERY MINUTE.
HOWEVER, WE HAVE TO MAKE A DECISION ON WHAT IS THE DIVIDEND YIELD AT A POINT OF TIME WHEN WE ARE CONSIDERING TO INVEST WITH DIVIDEND INVESTING STRATEGY; I.E. AT THE TIME OF A CERTAIN PRICE, AND HENCE THE DIVIDEND YIELD. IF THAT PRICE GIVES A HIGH DIVIDEND YIELD, MAY BE GOOD TO INVEST, AND VICE VERSA.
Old world stocks like Dlady, HEIM, Carlsbg, Panamy, Uplant, Pbank, BAT, Nestle are good dividend stocks. If they are bought 10 or more years ago, they would ahve made you very rich, not only in terms of dividends but capital appreciation. Increasing Dividends = increasing share prices (Dr Neoh Soon Kean).
Question now is: can we unearth potential stocks to follow above examples. Padini? HaiO? Scientx? Magni? Ptaras? Kmloong? ...?
Or wait for opportunities in the old world stocks?
Posted by R3D3 > Jan 16, 2017 10:07 AM | Report Abuse Chong: Needless to say, I wasn't focusing on you or your abilities. That was a general comment on personal observation. Have you not seen someone buying a stock, assuming that the xxx dividend a stock gave last year, would be repeated the following year? And based on the xxx dividend, they formulate their yield and declare their stock is a great investment? How many times have you seen such investment crash and burned? I have seen far too many examples of 'Berjaya Toto' type of 'dividend investments' fail. Also, I do have to say, the reply in CAPS is not pleasant reading.
The capital letters were used to differentiate your comments and my reply. Since you didn't like them (I can't control what you think), I will suit you and use small letters.
I would like to see your examples of bad dividend stocks you were talking to add to my list.
As I have said, you have to use a price at the point of time when using investing in dividend strategy, to make a decision on if the dividend yield at that price is good to invest or not.
Posted by ckkhen > Jan 16, 2017 10:04 AM | Report Abuse Old world stocks like Dlady, HEIM, Carlsbg, Panamy, Uplant, Pbank, BAT, Nestle are good dividend stocks. If they are bought 10 or more years ago, they would ahve made you very rich, not only in terms of dividends but capital appreciation. Increasing Dividends = increasing share prices (Dr Neoh Soon Kean). Question now is: can we unearth potential stocks to follow above examples. Padini? HaiO? Scientx? Magni? Ptaras? Kmloong? ...? Or wait for opportunities in the old world stocks? Over to you , KC.
ckkhen, For the old world stocks, values are presented normally during market down turn. It is hard to find good dividend stocks during normal time for high extra-ordinary return. But during bad time, buy as much as possible when their stock prices are beaten down.
In normal time, I tend to focus on the later category. You can still find many good buys there. If you check back the list of dividends stocks I have given you every month, you should see they provide you with very good return so far.
My opinion is, stay invested. The market is not at euphoria, and we can miss good opportunity by waiting.
"80 percent of success is just showing up?" Woody Allen
high dividend yield stocks are often generalised with stable ones when in reality it may not be. especially some stocks which only pay 1 or 2 years of high dividend/dividend is expected to fall in line with earnings
dividend depends on that year's earnings and cashflow while price movement depends on market expectations on the company. good companies' price will rebound at least to the level before adjusted for dividend after ex while others the market will just let it slide, then at most will be like taking money from your left pocket to put into the right pocket
Posted by R3D3 > Jan 16, 2017 11:08 AM | Report Abuse Chong: I can tell story of this girlfriend who has been doing Amway for 10 years. She worked hard, made good money. Not too long ago, she invested her hard earn money in the stock. Not exactly sure if it was 2013 or 2014. Last year, she exprsessed her disappointment with her decision to invest in Amway and regretted listening to her peers that Amway was paying good dividends and that whatever dividends she has received, could not cover her losses in her investment.
Posted by Jay > Jan 16, 2017 11:17 AM | Report Abuse high dividend yield stocks are often generalised with stable ones when in reality it may not be. especially some stocks which only pay 1 or 2 years of high dividend/dividend is expected to fall in line with earnings dividend depends on that year's earnings and cashflow while price movement depends on market expectations on the company. good companies' price will rebound at least to the level before adjusted for dividend after ex while others the market will just let it slide, then at most will be like taking money from your left pocket to put into the right pocket
Posted by R3D3 > Jan 16, 2017 11:08 AM | Report Abuse
Chong: I can tell story of this girlfriend who has been doing Amway for 10 years. She worked hard, made good money. Not too long ago, she invested her hard earn money in the stock. Not exactly sure if it was 2013 or 2014. Last year, she exprsessed her disappointment with her decision to invest in Amway and regretted listening to her peers that Amway was paying good dividends and that whatever dividends she has received, could not cover her losses in her investment.
It is just like a long time PBank or F&N employee decide to buy these shares at 20.00 or 23.00 respectively now bcos they have been giving good dividends. A case of buying wonderful companies at lousy prices. Nothing wrong with dividend approach if they have bought these shares at good valuation prices. Mistake is they bought at the wrong time. That is why dividend knowledge/FVI comes in to save the day.
Posted by 10bagger10 > Jan 16, 2017 11:35 AM | Report Abuse Dear master kcchongnz, need your advice, i had bought a lot of complet (Complete logistic berhad), but share price hardly move @ pe around 5.5. can give me some advise?
Don't know much about Complete. May be because it hardly gives any dividend. Without dividend, how do investors know the company really makes money?
Or maybe the earnings are very erratic and volatile.
Raider like to sum up loh...a dividend stock paying is of course better than div paying stock loh...!!
If u focus on dividend paying stock, u must look into dividend sustainability, cashflow, earnings loh....!! Do not focus on just div loh....!! Look at the past yrs of div paying track record loh...!!
If got growth and even margin of safety , even better loh.....!!
Never...never ...never sailing on 1 single stock, preferably portfolio 8 to 10 stocks of reasonable proportion loh....!!
Also use your head...do not overpay loh....!! Like Pet dag PE 25x...getting div yield of 3% pa high risk loh....!!
Alternative Nestle Rm 78.00 giving PE 25x with div yield of 2.5% pa high risk loh...!!
Always have an understanding of FD rates and Dividend yield loh...!! They are related...a high FD rates means u need to get div yield and vice versa mah....!!
i am a dividend lover. i started to invest in reits 8 years back when no one seem to look at it..after collecting 8 years of steady dividend and with price appreciated some more than 70%, i made huge huge profit by 7 figures after selling off last year when all reits were at peak. a man meat is another man poison .do not conclude when you are not in it, only gainer will smile all the times. I am so lucky to be on of them.
Bplant another example, two years dividend added up 25 sen , price once dropped to 1.17 , ipo at 1.60, land bank value in billions, many people missed when price dropped to dirt cheap, now at 1.67, if you accumulate a million share, you will be making six figures in two years.
Yippy68 friends I am also like dividend, however I bot Magnum when 2.50 now at 2.09. can you advise me should hold or can advise magnum still worth to hold because many people ask me to cut because magnum is a sunset biz like Parkson Parkson drop from 9.00 until 0.60 Now I very scare and worry about magnumI also got media but Media got GLC protect so Media I no worry at all even I enter at high price. Just this Magnum I really worry will nofollow Parkson Parkson drop until no underwear as we know So if Yippy68 free please advise on magnum. And why many people like TOTO than magnum TOTO still trade around 3.00 but Magnum near 2.00 LAst time magnum and toto every q also same give 5sen dividend now toto give 4 magnum give 3 and magnum so stupid , latest qr profit jump 44% but give 3sen only ,Be fair must give 4sen as publice expecetd
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
stockmanmy
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Posted by stockmanmy > 2017-01-15 16:31 | Report Abuse
Now....this is an article from a value investor, I can totally agree with.
Dividend stock, like high NTA stock, margin of safety stock,
Beware of value traps.....
First, nothing beats experience
Next, learn about Dynamic Investing.
Can give scholarship to other people children.