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Posts Tagged ‘dividend yields’

Importance of incentives (e.g. ministerial) & financial courses/ Dangerous to buying for yield

In Financial competency, Financial planning on 18/08/2014 at 4:40 am

Actively managed funds generate more fees for brokers which could explain a large part of their popularity. I’ve never once had a broker recommend a passive strategy and they look very disappointed when I mention it. Incentives matter.”—on “Practice makes imperfect”, August 9th 2014

Reminds me that tying ministers’ and senior civil servants, bonuses to GDP growth is problematic. The Chinese  have in principle stopped making GDP growth a KPI. They found that it skewers officials actions towards environmental degradation and urban sprawl because promoting heavy industries and building housing are the “betterest” ways to get GDP growth.

Crediting the classroom
New research shows that courses in finance at school can help reduce the harmful repercussions from taking on too much debt later in life

Danger of buying for yield alone

Even Neil Woodford, a star UK fund manager, has put the shares [HSBC] into his new income fund – it is the only bank in his top 60 holdings.

But the 12 per cent share price fall over the past year has wiped out more than double the value of dividends paid in the same period. That shows how dangerous it can be to hold shares for the dividend alone.

(FT’s Lex)

Not damaged CD like Cat Lim: Still holding Reits and dividend stocks

In Financial competency, Reits on 23/06/2014 at 4:53 am

Yes but saying I’m still invested in reits and dividend paying stocks, I know I’m sounding like Msian Cina New Citizen Pussy Lim playing her broken record or CD  of “The PAP are doomed” (first version 199o something) and repeated at regular intervals. BTW she’s the best ad for the Malay ultras and their slogan “Apa lagi Cina mahu?”. The PAP govt gave her citizenship and a cushy job teaching teachers (She bitched or catted at fellow lecturers: once asked students if fellow lecturer, a scholar, was gay. This was in the 80s and could have ruined his career: it didn’t as students reported her actions, and she was warned to stop) and she see how she repaid the PAP: sliming PAP.

Sorry, back to reits and dividend paying shares.

Defensive leh. No-one knows why things are the way they are

The world of finance is ensnared in a triple mystery: falling bond yields, falling inflation and rising debt. The ignorance is dangerous.

(The first two implies deflation, the last implies inflation as defaltion increases the debt durden: ask the Japs)

Investors and lenders are equally at a loss. They might want to prepare for deflation. But it is always possible that they should be preparing for a new mystery: the long-delayed return of inflation.

http://blogs.reuters.com/breakingviews/2014/06/17/triple-financial-mystery-remains-unsolved/

Or as the chief investment strategist at BofA-Merrill Lynch puts it. “The ‘fire’ of zero interest rates and central bank liquidity continues to be doused by the ‘ice’ of deleveraging, regulation and deflationary technology innovation.”

Or is possible that financial markets are simply adjusting to reflect this new economic reality, rather than being complacent?

Edward Hadas, economics editor at the commentary website Breakingviews, believes that the world economy is in unchartered territory – so no one really knows what might happen.

“We are dealing with something we have never seen before: very low volatility in such uncertain economic times,” he says.

Low volatility is supposed to imply calm and confidence. But he sees no evidence that investors are not aware of the global economic risks. In the media and among the commentariat in the City, there are plenty of warnings that challenges remain.

Mr Hadas wonders if the low volatility is due to more mundane factors: the banks that provide most of the funding for traders are under capital pressure.

“The result is less activity, less volatility and a greater correspondence of markets with reality,” he said.

But he warns: “Sadly, the calm is probably temporary. Traders will re-group and become more active once they adjust to the new funding environment. And whenever economic reality does change sharply, investors can be counted on to overreact.”

http://www.bbc.com/news/business-27920419

A clue I do not have.

So I’m playing safe. I avoid bonds and buy shares and reits that I think can continue paying decent payouts, and I bank the payouts, not reinvest them. And I keep my spare cash in CPF. At this point in time, CPF pays the best risk adjusted S$ returns. Not saying much, though.

BTW experts were saying last Dec and in Jan that bonds and reits were history. They outperformed.

 

Buying dividend stocks: downsides

In Financial competency on 03/05/2014 at 9:19 am

From FT

However, fund managers warn against simply picking stocks with the highest dividends.

“High dividend yields are a factor when picking stocks,” says Romain Boscher, head of equities at Amundi. But there are other important reasons for choosing a company, such as cash flows, to check the sustainability of a high dividend.”

Dividend cover, which calculates the ratio of earnings to dividends, has been improving as although companies have been increasing dividend payouts, earnings have been growing faster.

Even so, Mr Stout points out that some pension funds are reluctant buyers of equity. “It is a Hobson’s choice. Equities offering relatively high dividend yields are not necessarily investable for funds governed by perceived low-risk criteria. They do not have a proper choice as buying gilts offers a negative real return.”

Will Low, head of equity at Scottish Widows Investment Partnership, warns that shares are still considered risk assets and may not provide the answer in a worst-case scenario of a reversing, deflationary world economy.

He says: “We do not expect deflation, but it is a possibility. In such a scenario, the safest assets are government bonds. Equity income funds and companies offering high dividends are a better bet in equities, but they are not a guaranteed bet, particularly given this is now a more widespread consensus view.”

If Mr Rockefeller was alive today, he would no doubt, like some asset managers, draw hope from rising equity dividends. However, he would also likely be one of the first to admit that they are not necessarily the panacea in an uncertain world.

How times have changed since the late 70s (Dividends)

In Financial competency, Financial planning on 31/05/2012 at 6:03 am

No this is not going to be a piece abt the governing PAP.  When I first started work, US stocks paid big dividends , and local stocks yields were “peanuts”.

iShares offers its longstanding MSCI Singapore Index Fund and more recently rolled out the MSCI Singapore Small Cap Index Fund. Both funds are heaviest in financial stocks, at 45% and 51% respectively, followed by 24% in industrials for EWS and 13% in that sector for EWSS.

Singaporean equities tend to have high dividend yields, which are somewhat reflected in EWS’ trailing yield of 2.74%. The iShares Web site shows an SEC yield of 4.14% for EWSS, but the fund is too new to have paid any actual dividends yet. This compares to a dividend yield of 2.01% for the SPDR S&P 500.

Don’t buy bonds, buy stocks that pay gd dividends

In Financial competency on 05/05/2012 at 6:25 pm

Don’t buy bonds. Don’t focus solely on dividend yield, and avoid highly leveraged firms is the message that BlackRock gave investors a few weeks ago when it spooke to BT. Relevant exceprts from BT article from yonks ago I rediscovered.

Michael Steinhardt, whose hedge funds returned more than 20% a year for almost three decades, also doesn’t believe in bonds

“Bonds are no place to be,” Steinhardt, 71, who is now chairman of New York-based WisdomTree Investments Inc., said in an interview today on Bloomberg Television’s “Money Moves” with Carol Massar. “Equities are cheap by historic standards. Equities that pay high dividends relative to bonds, relative to the stock market, I think that’s a good place to be.”

http://www.bloomberg.com/news/2012-04-12/wisdomtree-s-steinhardt-says-bonds-are-no-place-to-be-.html

And so does Abby Joseph Cohen, senior U.S. investment strategist at Goldman Sachs. In mid-April, she  said equities will give better returns than bonds in the mid-to-long term as companies look to emerging markets for growth.

“You need to go back to the late 1950s to see a situation which equities were priced as attractively as they are now relative to bonds,” she said in a Bloomberg Radio interview. “1958-1959 was a period in which investors were very concerned about the economy and the yields on many equities exceeded the yields on fixed income at that point and — as you know — we moved into a multidecade bull market in equities.”

——————-

HIGH dividend yields should not be the sole focus in assessing equity returns over time, said Stuart Reeve, managing director and portfolio manager at BlackRock.

According to Mr Reeve, data collated over the last 31 years has indicated that more than 90 per cent of long-term equity returns can be jointly attributed to both dividend yield and dividend growth drive.

Generating long-term equity returns successfully thus requires identifying companies with attractive yields that are competitively advantaged and have the ability to sustain business growth.

To ensure a company is able to invest and grow its business, Mr Reeve stressed the need to factor in cost and cash available to a company to fund these developments.

‘That is so often a question that people do not ask in this space. What is the cost of growth? In different industries, it is different,’ he emphasised.

‘In a more stable industry, where the rate of change of the industry dynamic is not significant and not very fast, and you are competitively advantaged, your cost of growth tends to be relatively low.’

Identifying a company with low growth costs has its merits as it enables the company to reinvest and grow its business, with the company better positioned to commit some of that cash back to shareholders in the form of a dividend stream.

Investors should also exercise patience in order for results to materialise.

‘You must be willing to buy these investments at fair value and let the yield and growth compound for you and deliver great returns with lower volatility over medium to long-term horizons,’ said Mr Reeve.

Investors should also steer clear from companies which are leveraged to the tilt, he cautioned, citing the significant correlation between high leverage and cuts to dividends.

The focus on equity investment comes on the back of BlackRock chief executive Larry Fink’s message urging investors to scrap the inadequate 60/40 portfolio mix of stocks and bonds.

Mr Fink personally advocated a 100 per cent investment in equities owing to valuations and higher returns than bonds.

‘Virtually every investor has to find ways to achieve better returns than they’ll get in cash or government bonds for the foreseeable future,’ said Mr Fink. [ BTW, Kapito, a co-founder and president of the firm, told CNN Money last month that he has about 70% of his investment portfolio in dividend-paying global stocks. ]

BlackRock, the world’s largest asset manager with assets under management totalling US$3.51 trillion as at Dec 31, 2011, has increasingly set its sights on growing in Asia.

Buying for dividend yields can be dangerous

In Investments on 10/12/2009 at 11:41 am

Just ask the investors in Global Investments ( GIL, the former Babcock & Brown Structured Finance Fund) and Macquarie International Infrastructure Fund Limited (MIIF)

At the IPO price of S$1.06 in late 2006, GIL was offering a yield of 9%, while MIIF’s prospectus in May 2005 stated “forecast dividends delivering an annualised yield of between 7.1% to 9.0% on the Offering Price for the period ending 31 December 2005 (see ‘‘Financial Forecasts — Assumptions’’)”. Its listing price was S$1.

Well GIL (with lots of CDOs in its portfolio) is now around 24 cents, while MIIF is around 43.5 cents.

The saving grace is that both are trading below their latest available NAV calculations. MIIF’s NAV as at Sept is 80 cents down from June’s 86 cents. GIL’s is 36 cents as at September, up from June’s 35 cents.

The moral of these two stocks is that high yields could be a sign that investors need to be compensated for the risk that the dividends are not sustainable and that the stock price would fall. Of course, if one is lucky, it could simply mean that the market got it wrong — the dividends are sustainable and the stock price undervalues the company.

You place yr bets, and leave it to the cards.

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