Find a a small company with good revenue growth, very little debt, good margins and low valuations, Miton’s Gervais Williams says, and you can expect good income to follow, he tells the FT. He’s a UK fund manager who has juz started ian income investment trust to invest in small cap UK cos. His existing funds (including an income fund) have a bias towards this sector
Posts Tagged ‘dividends’
[A] safe dividend needs a business that is sustainable and profitable not just for a few years, but over the decades, or more than the entire life of some quite substantial companies, FT.
And do remember that Reits, Biz Trust, pay out most of profits, cashflow.
Many bloggers are upset that the govmin is giving S$1.1bn to SMRT and ComfortDelgro to help improve bus services. Seems to them, “subsidy” is a dirty word. Hmm, didn’t they get the idea that subsidies are always bad from the PAP idea, particularly one LKY?
But maybe, the PAP has changed its mind that the word “subsidy” is a dirty word. Reminds me of what Keynes is supposed to have said In response to an accusation of inconsistency: Keynes is often reported to have said “When the facts change, I change my mind — what do you do, sir?”. More to the point, he is reputed to have said: “When circumstances change I change my mind. What do you do?”
Well the facts and circumstances have changed. The PAP’s share of the popular vote is only 60% and its perceived presedential candudate won by just 7000 votes or less than 1%.
I’m not complaining that the PAP is being pragmatic by addressing the hot issue of overcrowded public transport: I take the bus. I’m not one of those who don’t take the bus regularly, has one car per family member, doesn’t pay income tax, and bitches abt this subsidy.
BTW, I don’t own shares in either company, nor in SBS Transit. I never bot as I tot dividends might not be sustainable. Juz look at the share prices in recent years. The yield remains highish because share prices have collapsed i.e. dividend payments have fallen.
But now the 2011 dividend payments for ComfortDelgro and SBS Transist look sustainable.
Anyway, here’s an example of a subsidy. I own shares in HSBC which I’m glad took advantage of the European crisis to get a subsidy from the European Central Bank. Let the BBC’s Robert Preston tell the story,
“HSBC, widely perceived to be the strongest of the UK’s banks and one of the strongest in the world, borrowed €5.6bn from the ECB … The reason it may be controversial that British banks have borrowed so much from the ECB – a bit less than 4% of all the money on offer – is that the interest rate is so low, just 1%. So arguably eurozone taxpayers are subsidising UK financial institutions.
Go buy stocks that pay good, sustainable dividends https://atans1.wordpress.com/2011/08/12/a-broker-who-almost-got-it-right/
BTW same as for 2010 https://atans1.wordpress.com/2009/12/31/investment-strategy-for-2010/
Just because a company pays a dividend now is no guarantee that it will forever, or that the company will even continue to exist. Nor is it any guarantee that the underlying stock is stable.
Again and again, we’ve seen out-of-nowhere scandals and crises and accidents bring big companies to their knees. Why, given the overwhelming evidence that these things do happen once in a while, would you not extract your dividend income from a low-cost, broadly diversified mutual fund that specializes in dividends?
The moral of the story, as always, is to diversify within each asset class you own, whether it’s dividend-paying stocks or municipal bonds or the emerging-market countries where you’re rolling the dice for big gains. Then, diversify your retirement income, too. The more sources the better, whether it’s dividend income, interest income, annuity income, rental income or periodic (and tax-savvy) outright sales of stocks or other assets.
Even this sort of diversification might not have protected you from the pain in 2008. But it can shield you from the ruin of betting too heavily on a single security like BP.
It was reported in Today that ” Minority shareholders of Lion Asiapac are making another push for the company to pay out special dividends. Previous calls for such distribution were ignored.”
‘Mr Mano Sabnani, a Lion Asiapac shareholder, said: “The company has got more money than it needs. It can easily pay out 20 cents a share and still have a big cash hoard for new businesses.
‘Shareholders had previously petitioned Lion Asiapac’s chairman Othman Wok, calling for the distribution of special dividends to boost the stock price, which is trading at a heavily-discounted 33 cents to its cash value of 47 cents.”
The problem is that the company is a subsidiary of Lion Group, a M’sian listco, which means that Lion Group has the votes to block any such resolution.
Buying on a deep discount to NTA only works if the value investor can see some catalyst that will unlock value. Where there is a controlling shareholder or shareholders, this catalyst often does not exist. Witness Haw Par https://atans1.wordpress.com/2009/12/11/hidden-tiger/,
And bear in mind that such a discount could also be a sign that investors are concerned that the cash or assets could be used up in unprofitable businesses, rather than given back to shareholders. Again where there is a controlling shareholder or shareholders, this is more likely to happen. Not because the shareholder wants to screw the others but often because his time horizon is very, very long. And he has other reasons for his holdings say sentimentality.
Chinese dot.com companies listed on Nasdaq were trading below their net cash positions after the dot.com bust. Investors rightly assumed that they would not see the cash.The cash would be used to fund internet ventures etc. Anything else except be returned to shareholders. They were right.
The “future’s bright” buying we saw in the S’pore mkt in the first week of 2010 has turned to “no future” selling, since Tuesday. Looks like the penny-stock syndicates may have got their timing wrong. Watch out for forced selling as punters ignore margin calls.
Blame the Chinese government for spooking global mkts.
— China increased the amount banks must set aside as reserves in the clearest sign yet that the central bank is trying to tighten monetary conditions amid mounting concerns of overheating and inflation as a result of the credit boom.
— The central bank also raised interest rates modestly in the inter-bank market on Tuesday for the second time in less than a week.
Trumpets pls for my 2010 strategy: ” Look for strong balance sheets and dividends that will compensate if brokers’ optimism turn to be wrong.” https://atans1.wordpress.com/2009/12/31/investment-strategy-for-2010/
We could be going back to the future. In 1993, America discovered emerging Asian mkts. Come Jan 1994, these mkts were expected to continue flying. Then Greenspan started raising US rates.
Funds started selling and mkts went down and quiet. This time it could the emerging hegemon that causes investors and brokers to reassess their bullishness.
“A possible major catalyst for SIAE [SIA Engg] is if parent company SIA decides to divest its substantial ownership in the company as it did Singapore Terminal Airport Services (SATS) earlier this year. SIA currently owns an overwhelming 80.6% stake in SIAE,” says Kin Eng Securities.
My tots in mid June 2009:
SIA does in specie share dividend of SIA Engg saying:
“Distributing shares through an in specie dividend will unlock shareholder value by giving SIA shareholders direct ownership of SIA Engg at no cost to them …The proposed distribution will allow SIA to concentrate on its airline business, something advised by MM Lee in 2004 … SIA Engg will be able to independently pursue opportunities to aircraft maintenance, repair and overhaul businesses. The Proposal will improve trading liquidity of SIA Engg shares, potentially enhancing value.”
Then after some time has passed
SIA Engg announces Acquisition of 100% of ST Aerospace from ST Engg
“Acquisition consistent with SIA Engg previously announced long-term strategic plan”
ST Aerospace is the “Largest aircraft MRO company by commercial airframe man-hours” and has “Strategic partnership with RSAF”
Rights issue with Temasek taking up its entitlement and prepared to subscribe for shares that other shareholders don’t want.
Remember you first heard it here. But based on the companies’ past performance, SIA Engg should only buy ST Aerospace, if the price paid reflected Aeo’s lower margins. SIA Engg’s margins are consistently better than those of Aero. EG In financial yr ending Dec 2008, Aero’s turnover was S$1.9b with PBIT of S$272m, while SIA Engg turnover was S$1.1b but PBIT of S$301m.
But what price another national champion? And financial engineering by Temasek?”
Look for strong balance sheets and dividends that will compensate if brokers’ optimism turn to be wrong. If past form is any guide, the brokers will get it wrong again. If my fortune teller’s track record is as bad, he would have starved to death for lack of clients.
Remember in late 2008, they were pessimistic for 2009 (and they were nearly right: remember March 2009?). Now the brokers are bullish for 2010, predicting STI will break 3000. As this is only 3% away, this should be a no-brainer. But what then? I’ve not seen a negative outlok for the whole of 2010.
STI tracks the US market closely. The 10-year price-to-earnings ratio of the S.& P. 500, a measure of how expensive stocks are relative to profits, was more than 20.3 in late December, up from 13.3 in March. The average for the last 130 years is 16.4, according to calculations by Robert J. Shiller, the Yale economist. So there are reasons for being cautious again.
In mid-2009, the FT carried an intervieww with a strategist from CLSA who said we are in the midst of a bear market rally. Nothing new here. But unlike other pundits, he said this rally could run for another two years before collapsing. He cited what happened after the dotcom bubble bust in 2000/ 2001.
He said, with hindsight, it was clear that the recovery from 2003 to 2007 was a bear market rally.
Bottom line: A bull run or bear market rally can only be predicted in hindsight. So a little caution is again called for.
As this NYT blogger wrote:
“Travel back in time to the dark days of last March, when the Dow was flirting with 6,500 and pundits were predicting the end of capitalism as we know it. As a result, stocks were dirt cheap — as they always are in a panic. Should you double up with your last cash reserves or slowly feed in more limited amounts of cash?
‘The conservative approach turned out to be wrong: although you did just fine, you could have made a bundle by going all in. But suppose the economy, and the markets with it, had indeed fallen off a cliff. Those who went all in would have been wiped out, while those who kept some dry powder would still at least be paying the bills. Which just might be how it turns out the next time.” Italics are mine.
Dear Mr Cynical Investor
I thought I would add my two bits worth after reading your piece on “New thinking on Asian Stocks”. If you think that dividend yields of 2.8% for Asian markets is exciting may I tickle you with dividend yields of 6% plus for Australian banks (the major 4 being among the world’s top ten triple A rated banks) and as much as 9% for the nation’s Telecom company, Telstra. With 100% franking (tax credits), FY10 gross yield jumps up to 8-9% for the banks and 13% for Telstra. Using the simple Rule of 72, an investment in Telstra (ceteris paribus of cos) at the gross yield of 13% would double your money in 5 1/2 years.
No wonder the A$ is so strong ;-)
From someone who thinks Albert Einstein, Jesus Christ, Ussan Bolt are not a patch on her son — but at least the boy got letter from Kevin Rudd contragulating him that among he the top 1% A-level students.
This appeared in today’s BT.
Writer, Lee King Fui, a fund mgr from Schroder, advocates buying Asian stocks that pay good dividends regularly. Investors in Asian stocks used to consider this kiddie stuff. You bought Asian shares because they gave spectatcular capital gains. You wanted dividends, you bought into wimps in the US, UK, European. Asia was for he-men, not girlie-men
Can’t say much abt other markets, but such a strategy would have worked here esp as there were tax credits to be used up. Now gone alas.
“To participate in … long-term economic growth of Asia, investors may wish to look at an investment strategy that focuses on the dividends of companies. While not intuitive, capital return has rarely been a dominant component of total return nor has it a strong relation to economic performance. Other studies on the US and the rest of the world have reached a similar conclusion. In fact, our empirical investigation into the historical make-up of total return for Asia from 1994 to 2008 shows that dividend return is by far the largest component of total return, and bears a much stronger correlation to economic growth.
‘The reason why dividends closely track economic growth is not hard to comprehend; dividend payouts are driven by company fundamentals such as earnings and cashflow which are directly impacted by prevailing economic conditions. Stockmarket appreciation, however, can sometimes be driven by less fundamental factors such as sentiment, momentum and liquidity. Therefore, investors looking to invest in Asian markets because they want to participate in the region’s strong economic growth are more likely to achieve their objectives in the long-term by focusing on capturing the dividend return of Asian companies, than by targeting the capital return of stocks. In essence, they should be owning assets that pay shareholders to own them over time.
‘Focusing on dividends also helps one identify fundamentally strong firms. Because managers have better inside knowledge of their companies, dividends are often used by them to signal superior information about their firms’ future earnings and growth prospects. In our study of dividend payouts in Asia, we have found a positive relation between the dividend payout of companies and their future real earnings growth, thus supporting the existence of dividend signaling in the region.
‘However, investing in companies paying high dividends goes beyond investing in companies that are signaling high expected earnings growth. Often, companies that have high payout ratios have tended to be companies with good corporate governance standards as well. Because the disbursement of free cashflow as dividends helps to limit the potential for inefficient managerial investment or insider expropriation, agency costs are alleviated and the interests of managers and shareholders are aligned.
‘Indeed, in a region like Asia where corporate governance is improving but not necessarily always strong, picking companies which share their earnings growth with minority shareholders via dividends actually helps investors pick companies that have credible management.
‘The financial scandal at a leading Indian IT outsourcing company earlier this year is a case in point. The admission by the chairman then that he had been falsifying company accounts and inflating assets for several years had rocked the corporate community. A dividend-focused strategy would have helped one avoid this investment pitfall as the company had been paying no dividends for many years. Certainly, a company that was reporting double-digit earnings growth and sitting on a reported huge cash pile but paying no dividends would have pointed any dividend-focused investor to either poor capital management, weak corporate governance or, in this instance, fraudulent accounting.
‘[B]esides some of the more conventional dividend hunting grounds such as Australia, Hong Kong and Singapore, we are increasingly seeing opportunities in some of the developing markets. In particular, we like markets like China and India, as we believe these countries have much scope to grow their dividend payout ratios going forward, from current low levels of 38 per cent and 22 per cent to the Asian average of 47 per cent. The growth in their dividend payments will also be underpinned by the huge economic growth potential of these emerging giants.
‘We also see vast dividend potential in the smaller developing markets, like Thailand and Indonesia. For Indonesia in particular, the dividend paying culture has been continually improving over the last few years, with payout ratios rising from 31 per cent last year to 42 per cent this year. This trend of higher dividends will be further supported by the stronger and more stable political environment, which should lessen the need of Indonesian companies to retain excessive cash on their balance sheets to offset macroeconomic uncertainty.
‘Overall, we continue to believe that the long-term case for investing in the region remains compelling. Not only do regional markets offer good opportunities for investors focused on dividend yield, they offer the scope for greater participation in the region’s strong economic growth as well. Asia is now one of the highest dividend payout regions in the world, and this trend of improvement is set to continue. Indeed, the dividend yield available from Asian markets stands at 2.8 per cent which compares favourably to the yield in global markets of 2.6 per cent. [BTW STI index yields about 3.3% as at Sept]
‘[T]he dividend growth that we have seen in Asian equity markets has not been at the expense of dividend cover, which is at a relatively good level. Sources of dividend yield across the region have also become more diverse with many of the regions’ markets trading on attractive yields. Indeed, the improvement that we have seen in Asian dividends is a structural – rather than just a cyclical – development, helping to lay the foundation for more sustainable dividend payments, and justification for a longer-term re-rating of Asian markets in general.”
The purpose of this blog is to entertain by providing, I hope, witty, critical and acerbic analysis of companies’ strategies, financials, and management. In particular to analyse the difference between what managers say they are doing, and the truth.
Just so everyone is clear where I am coming from — I analyse and write from the perspective of a small investor who tries to invest in “special situations”: unfashionable companies that are experiencing change in their returns due to internal factors, such as restructuring, or external factors, like industry changes. Or whose high, consistent dividend payouts are ignored by the the market. Trading is not my style.
As I do not hold any adviser’s licence, I will have take care to ensure that no-one can complain that I am giving advice. And please do not ask for advice on market conditions or stocks.