Saturday, February 27, 2016

Dividend Income Update - 1st Quarter 2016

As previously mentioned in the last quarterly update, this will be an attempt to try and provide a quarterly dividend income update to see on how it is progressing so I can have a clearer year to year comparison moving forward.

For those who are new readers to my blog, dividend investing is a big part of my investing strategy because the end goal is for me to achieve sufficient income to cover my expenses. That is when I declared myself financially independent.

Having said that, that does not mean that I will go for the highest dividend yield counters I can find out there. What I need is sustainable dividend payout and prudent management such that it will continue to support me as I grow older each year and not having to worry about whether the dividends will be coming in or not. Make no mistake, I still continue to monitor my portfolio very closely each time.

I love dividends because they are hard cold cash which the company earns that they choose to give back to shareholders. I'll take it as if I am putting my hard earned money in a company which gives out profit share once they make profits. The other reason I like about dividends is they are automatically deposited into my account without having the need to have my presence at a particular time in a particular place. A good management will take care of all these hassles which employees dread about.

The 1st quarter dividend income came to $3,056 which I think was pretty good as they are not traditionally a strong quarter to begin with. I don't have any particular to where the money should be spent on so they will most likely be reinvested in the stock market to accumulate more dividends in years to come. I think this should be the right cycle to kick things off especially in a bear market where we are right now.

CountersDividends (S$)Payable Date
Nam Lee Metals875.022-Feb-16
CapitalCommercial Trust339.025-Feb-16
FraserCenterpoint Trust377.029-Feb-16
Keppel DC Reit328.029-Feb-16
First Reit167.029-Feb-16

For those who are just starting out, this may be one of those strategies which you can try out. The hardwork is always in the beginning but once the fruits is harvested, the rest of the gratification should come in pretty nicely later.

Saturday, February 20, 2016

Is Maximizing Share Price Equals To Maximizing Shareholders' Value?‏

If you ask any CEO of a company, he or she would tell you that their main objective for running the company is to maximize shareholders’ value. 

Maximizing shareholders’ value is subjective because as shareholders, we all want different kind of things. Some want better sustainability reporting or others may want higher dividends. There are probably another group who wants the company share price to ascend upwards in due time. But does share price equals to maximizing shareholders’ value? 

There are researchers who went around different companies to interview their CEOs and they divulged that they get mounting pressure to increase the share price of the company and inflate the market capitalization. For anyone who are unsure what market capitalization is, they are basically the total value of the number of shares the company issued multiplied by the share price the company is trading. As you can see, there are multiple reasons why the market cap (share price) is important to the management – tapping institutional investors, incentives, influence of market intermediaries, management bonus, etc. 

The problem with trying to influence the market share price is it depends a lot on a whole other factors – some systematic like fundamental changes while other unsystematic like macro or black swan events. 

The share price of a company can be decoupled from both weak and strong fundamental performance for instance. By weak earnings or changes to the operational positions, investors might value them at a trading range lower than their historical because it is now more riskier than the norm. Even when earnings or fundamentals are getting stronger, there will be a cycle of misevaluation attached to it. For instance, Osim or Super Group. This starts when the company captures the attention of the strong institutional investors or other capital markets, snowballed the effect to other smaller brokers and retail investors and as a result the price gets pushed up higher and higher to become overvalued. In the premium building process, the management will have pressure managing the share price and expectations of the market and might do things that will meet the short term performance, which can be detrimental to their long term success. 

The long term costs of focusing on the wrong thing is detrimental to the shareholders who suffer direct losses from owning part of the shares of the company. In the correction process, shareholders usually gets punished severely as they see their company shares dived down to the point of no return, usually. It takes an elevator to rise slowly but dived down by jumping. 

In this regard, we can perhaps attribute maximizing shareholders’ value as achieving the fair market value for the company. By fair value, I mean achieving a market capitalization that accurately reflects its sustainable underlying performance of the company. It implies a very different objective from the management as they have to manage the expectation of the market and ensuring the market does not overly placed a premium on their valuation. 

I guess when that happens, long term investors get what they deservedly get by staying vested with companies such as Vicom and Boustead where shareholders are rewarded handsomely over a period of time.

Saturday, February 13, 2016

Who Are The Real Robbers?

Let me start off with a story I read on the web.

There was a robbery incident that took place in a bank one evening. The gang leader shouted to the crowd:

Gang Leader: "Don't move. These are money that doesn't belong to you. Move and I will shoot you."

This is called Mind Thrust Changing Concept.

The robbers knew exactly how long the police would arrived and they would finish their job before the police could come to the scene.

This is called Being Professional and Doing Due Diligence.

When the group of bank robbers returned home, the youngest robber (with a MBA trained degree in one of the prestigious institution) told everyone:

Youngest Robber: "Let's count how much we have and split them accordingly."

This is called Education.

The Gang leader replied:

Gang Leader: "You are so stupid. It'll take a long time to count those money we stole. Tonight, the news will tell us how much money we robbed from the bank."

This is called Experience and Thinking Outside The Box.

Meanwhile back at the scene, the bank manager attempted to call the police after the robbers have fled the scene. But the bank supervisor interrupted:

Bank Supervisor: "Wait!! Let's take some of those money left behind by the robbers since the police would suspect those robbers."

This is called Swimming with the Tide.

After the event, the court was asking for witnesses to testify against the incident but many of those who were there were unwilling to volunteer.

Witnesses: "Don't get me into anymore trouble. I have many things to handle on my plate already."

This is called Mind Your Own Business.

The police, knowing that there isn't sufficient evidence to arrest the robbers and hence crack the case then proceed to close the case as unresolved.

Police: "Let's not waste anymore time on this case. Let's move on to crack the next available case."

This is called Just Another Day Doing My Job.

The question to the story is who are the Real Robbers in this case?

Didn't we see this happening in our everyday lives?

In the context of investing, what behavior do you see now that is different with what you see exactly a year ago?

I hope you enjoy the story.

Thursday, February 11, 2016

Where Are We On The 10-Year Treasury Yield?

When you are investing in treasury bonds, you are essentially lending money to the government that issued the bond. Treasuries are considered to be a safe haven in times of economic crisis because riskier asset classes like equities usually gets hammered downwards. Of course, there are treasury bonds that can default if the countries are facing bankruptcy like Greece and Portugal but the flight to safety is usually to an excellent rated bond like the US bond.

It is interesting to note that just a couple of months ago, the US Fed was bullish about their economy and inflation target and they were upbeat about raising the interest rate. This sends the treasury bonds yield upwards upon announcing the news. A couple of months now and it is incredible to see where we are on the treasury bonds. With the ongoing crisis happening across the oil sector, China landing as well as Euro crisis, we have plenty of investors who are abandoning the riskier assets and flight to safety to treasury bonds and gold as safe haven.

In fact, as of today, risk-off sentiment saw heightened demand for safe haven treasuries, with the 10-year US government bond hovering around 1.56%. This is incredible considering where are on the history (which I will present later) of the treasury yield and the intention to raise the interest rate further. It almost feels like there are already fear in the market.

If you look across the historical yield data of the 10-year US treasury bond all the way from 1912 to 2016, the lowest yield it ever goes down to is 1.40%, which is not far away given where we are at 1.56% right now.

This is indeed a historical moment that we are witnessing given that Japan, Germany and Sweden Central Bank all have historical low yield (or negative) that can be a very dangerous tool to implement since this might result in a currency war.

At the end of the day, this is simply an indication tool that we can analyze from but if everyone is willing to put their money where they think is "safe" right now, then you and I can bet where we are on the economy for sure.

Wednesday, February 10, 2016

"Feb 16" - SG Transactions & Portfolio Update"

No. of Shares
Market Price (SGD)
Total Value (SGD) based on market price
Allocation %
Ho Bee Land
China Merchant Pacific
ST Engineering
Fraser Centerpoint Trust
IReit Global
Dairy Farm*
City Development
CapitaCommercial Trust
Keppel DC Reit
Nam Lee Metals
First Reit
Total SGD

Feb continues to be a volatile month as we experience plenty of drama with ups and downs over the past few days (or weeks). Nevertheless, for those who sees this as an opportunity to pick up some bargain stocks at a more attractive price would certainly love the market. I certainly do because time is on my side and I know these investment would pay good dividends for as long as I live.

I've accumulated a bit of my core position in recent times so you can see where the focus I'm putting right now.

I added another 1,000 shares of OCBC since my last update as it continues to trend down and I, on the other hand continue to pick up the bank stock at a bargain. I understand that there are many who are awaiting for the banks to reach the 2008 low, that's totally fine with me. If it ever reaches there, I'll add even more to it but if not, I'll be a happy man anyway. Either way the market goes, I am contented.

I also accumulated 5,000 shares of Ho Bee since my last update. This has quickly become my second biggest holdings after OCBC and I blogged a few times about why I'm confident in this counter. I think there are plenty of catalyst to note from this family owned business and I won't be surprised to see them announcing a strong full year results upcoming.

I also added 1,000 share of ST Engineering since my last update. Whilst this year and next year results will be weak, in particular for contribution from the marine side, I remain confident that this is a strong defensive yield play and they have segments that can uplift the other when they are not doing so well. It won't be a strong rise towards where it used to be but I think this should be a decent hold towards the long run.

I divested all my holdings in Stamford Land as I plan a shift towards the more blue chips since market is down. Stamford Land announces some pretty decent results recently but cashflow is rather poor since they need plenty of cash to redevelop their main gem. Their main play would be next year when the redevelopment plans will be recognized on their books. I will continue to monitor and see for this one.

The portfolio for the month has dropped from the previous month of $345,601 to $342,083 in Feb (-1% month on month; +18% year on year). The drop did not particularly worried as I know these are temporary falls and the more important thing is to look out for any opportunities that I can get in the market. Expected simulated dividends are at $18,254/year, which translates to about $1,521/month. I better buck up and start working on reaching my $2k/month dividends by this year but most would have to depend on how the market would go.

I hold about 14 positions right now which I am vested in.

Some of my fellow friends have lamented on the idea of slow bleeding in today's market. I actually like it a lot. It actually allows me to add a couple of positions every month while waiting for my salary to come in so the longer the market stays this way, the happier I am. All I have to do is stick by my strategy while keeping some warchest on the sideline in case there are further sales.

Thanks for reading.

What about you? Do you like the current slow bleeding or fast capitulation in the market?

Thursday, February 4, 2016

Vicom FY15 - Steady Dividends Growth Play

This would be my last coverage for the company since I have divested in the company recently and thought I'd just finish the full year as part of the series. I'll still be keeping a close look on the development of the company but unless I decide to get vested again, I won't probably be reporting on their results.

You won't see much surprises coming in from the company. I think over the years it has been pretty one way direction on where the earnings are going but with the recent slow growth for their vehicle segment and slowdown in the setsco segment, it may be worth to take a look if the trend for the future would reverse back. From the very least, that's what I decide to do when I divest the company recently and looking at where the other opportunities are.

I highlighted in the previous quarter 3 results (link here) that there are slowing signs that the company is facing. This isn't purely just this company alone but across all other sectors many are facing difficulties as well.

FY revenue came up to $106m, a small 1.3% decline as compared to the previous year. The good news is, as I had highlighted in my previous post, they are able to reduce their staff costs correspondingly by a similar amount. I think this is something that many companies would envy and are struggling to do because for most of the times, it isn't that easy to reduce your workforce or reduce their pay. Net profit attributable to shareholders edged up 4.2% at the end of FY15.

If you look at their balance sheet, they continue to grow stronger with cash burst through the $100m mark now and almost 57% of their overall asset value. Capex remains within the range and FCF continues to be strong at around $32M.

They continue to pay out good dividends growth over the years and this year was no exception, despite the topline slowdown. Dividends has increased to 28.5 cents, up from 27 cents the previous year. Based on current price, they provide a nice 4.9% yield to investors.

Final Thoughts

It'll be nice to have this as a pure yield play now giving you 4.9% return every year.

However, with some of the other opportunities out there, I feel there may be a better risk reward elsewhere since there are other stocks which has come back down to earth.

The other thing to note is also on their topline slowdown, evidently from the slower 0.25% yearly growth as set out by LTA and also how their non-vehicle segment are playing the weaker economy out.

*not vested as of writing but may look to be vested again someday, at the right price

Tuesday, February 2, 2016

Bespoke Trance Opportunity

If you had watched the movie "The Big Short" which is currently airing in theatre, you would have noticed that at the end of the movie, it quickly highlighted Bespoke Trance Opportunity as the next possible bubble to be burst which will cause another financial crisis greater than what we experienced in 2008.

Some of you may have been curious about what they are about, so I'll try to describe and put them as simple as possible in layman terms.

Bespoke Tranche Opportunity is basically a synthetic CDOs which the banks are currently selling to the world which resonates to the same underlying portfolio that crashes the financial crisis in 2008. I will not have to go further to what happened back then but if you are unsure, the movie will help to explain in a very layman way of understanding it.

As part of the bank's financial engineering to package this deal to make it attractive to investors, they put in a couple of assets (bonds, securities, derivatives) with different credit quality to entice investors to put their money in the bank with a specific targeted return and risk. In doing so, they attract a chain of compounding effects on people who bet on the products and this will create a bubble until the day it bursts (we never know when).

For example: You offer a bundle of mortgages to me for $100 with 10-to-1 odds that they will default. I accept your offer and buy them from you for $100 with 15-to-1 odds that they will not default. Whether or not they default or not at the end of the day it does not matter. The bet was realized one way or another. We would have a binary outcome of someone who lost and someone who won. This is the "synthetic CDO" which I was talking about. If the train of baseless transactions stopped at some point in time, then the damage would have been contained in 2008. Unfortunately, it is hardly the case. The problem would compound and easily become "atomic" when bets were made on our bet and so on and so forth. This creates a chain of events when the bubble burst.

You might wonder why history repeats itself despite the past warnings or incidence that has happened. The reason for this is simple. We have been living in almost a decade of low interest rate environment which has been kept low by the Federal Reserve until the recent hike so if you are working in an investment banking department, you would need to think of ways to come up with a customized product which will boost demand and earnings for the company. After all, your bonus would be directly impacted if otherwise. You certainly can't do "enough" with simply selling mutual funds or treasury bonds. That is not the diamond you want to be working in investment banking.

If you had watched the movie, you would also have noticed that only one high profile leader by the name of Kareem Serageldin gets punished severely with jail term from the consequence of all the hazards they caused to the world. This is a far cry from giving sufficient warning to those greedy bank leaders and future participants because seemingly "everyone gets away from it" anyway. In other words, there are simply a lack of accountability on all these that matters.

There are plenty to learn from the history but there's a huge tendency for history to repeat itself again because the financial structure is not build to last. At the end of the day, be wary of what is happening around you and protect yourself. Things are not going to be pretty if you are a victim of it.