Sharing Wisdom (5th March 2012)

8/2/2019 Sharing Wisdom (5th March 2012)

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SharingWisdom(5thMarch2012)

Dividendstocksworthcheckingout

5thMarch2012

ByJonathanKwok

TheStraitsTimes

2012SingaporePressHoldingsLimited

Sharesthatdeliveradecentyieldmaybeabetteroptionthanputtingyourmoneyin

thebank,giventhelowinterestrates.

Puttingyourcashinthebankmightbethesafestthingtodo,butwithinterestratesat

1percentithardlyqualifiesascannyinvesting.

Amorebrutalassessmentwouldbetobranditasslightlyunwise,especiallywhenfar

betterreturnscanbehadelsewhere.

Likeinshares.Yes,thestockmarkethasbeenagraveyardforsomeinrecentyears,a

rollercoasterofmuchpain,someprofitandnoendofpanic.

Butstockscanpromiseadecentdividend-justwitnesssomeofthetopperformers

thathavereportedtheirresultsinrecentweeks.

AcheckbyTheSundayTimesofstockswithamarketcapitalisationofatleast$500

millionshowsarangeofbluechips,medium-sizedfirms,realestateinvestmenttrusts

(Reits)andbusinesstruststhatofferayieldofatleast6.7percent.

ThetopperformerisElec&Eltek,amakerofprintedcircuitboardswithoperationsin

Asia,EuropeandtheUnitedStates.

Thefirmrecentlyproposedafinaldividendof12UScents(15Singaporecents)ashare.

Thiscomesontopoftheinterimdividendof15UScentsalreadypaidout.

Ifyoutakethefull-yearpayoutof27UScentsonitsThursdayclosingpriceofUS$2.54,

thedividendyieldforthestockworksoutto10.63percent.

Putsimply,ifyouhadmanagedtobuyonelotofthesharesatUS$2,540lastyear,you

will-bythetimethefinaldividendispaidaroundApril-reapadividendofUS$270and

henceaone-yearreturnof10.63percent.Thecalculationassumesnochangesinthe

sharepricethroughoutthisperiod.

Bouncethatoffyourtermdeposit.YouwouldbeluckytogetUS$25(or1percent)

fromthatUS$2,540.

Ifyoubuythesharesnow,youwillbeentitledonlytothefinaldividendof12UScents,


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butthatstillworksouttoaprettydecentreturnof4.7percent.

AnotheronthetopdividendstockslistisStarHub,whichisaninvestors'favourite.Its

yield is 6.9percent.At $2.90ashare last Thursday, it will be $2,900a lot. Andthe

dividendswere$200lastyear.

Anotherplusisthatitpaysoutdividendseveryquarter,sogroupssuchasretireescan

lookforwardtoaregularstreamofincome.

'I'mlookingforasourceofpassiveincome,andacompanyIcantrust,'saidMrBen

Chua,61,a retireeandprivate investorwhohasdividendstocks inhisportfolio. 'It's

alsogoodifthepricesofthesharescanalsorise.'

Whatyouneedtoknow

*Itallsoundsgoodonpaper,butsharepricescanfalltoo.

'Themainbenefitofstocksthatoffergoodyieldistheirabilitytobeatbankdeposit

rates, whichare very low now,' saidOCBC Bank's head of content and research for

wealthmanagementVasuMenon.'Dividend-yieldingstockshelpyouputyourmoney

toharderwork.'

Verysimply,$10,000inabankat1percentyields$100ininterestafterayear.Put

$10,000inStarHubandassumethesharepricedoesnotchange,anditcontinuesthe

rateofitspayouts-yourreturnhasgoneupto$690.

Butifthesharepricefallsby,say,10percent,thestock'svaluewilldropto$9,000.This

willwipeoutoneyear'sdividendandstillleavetheinvestorintheredbyover$300.

Oneriskofholdingadividendstockversusputtingmoney inabankis thattheshare

pricefluctuates.Inadownturn,aninvestor'ssharecapitalwillbeeroded,whereasheis

basicallyguaranteedtogethiscapitalbackifheputsitinabank.

ButMrMenonnotedthatthemarketpriceofhigh-dividendstocktendsnottofallas

muchduringadownturn,astheyieldonthesestocksrisesevenfurtherwhenmarkets

fall,enhancingtheirappeal.

Thismeansthatotherinvestorscouldbuyintothestock,offeringsupportforitsprice.

SiasResearchchief executiveRogerTan noted thatdividendyields provide investors

withreturnsduringbadtimes,orwhenmarketsarevolatileandweak,astheywaitfor

amarketrecovery.

*Somestocksposthandsomeyieldsbutthesemayincludespecialdividendswhichmay

notrecur.

Somefirmsnottypicallyknownfortheirstrongyieldshavesurprisedthemarketwith


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better-than-expectedpayoutsorspecialdividends.

Forexample,KeppelLandannouncedabumperpayoutaftersellingitsstakeinOcean

FinancialCentretoK-ReitAsia.Itispayingafinaldividendof20centsashare.Onlast

Thursday'ssharepriceof$3.42,thisisayieldof5.8percent.

Thatmeansinvestorsneedtodotheirhomeworktocheckifthiscompanyhasbeen

payingoutthesamelevelofdividendsregularlyorif thisattractivedividendis justa

one-hitwonder.

One way of doing this is through the Singapore Exchange website and

ShareInvestor.com,whichkeeptrackofafirm'sdividendpayouthistory.

Investorsshouldalsolookatafirm'sbusinessmodel,debtratioandcashflow,among

otherfactors,toformajudgmentonwhetherthepayoutsaresustainableandarelikely

toberepeated.

*Identifystocksthathaveaclearlystatedoreasilydiscernibledividendpolicy.

SiasResearch'sMrTan likescompaniesthathaveapolicyofa fixeddividendpayout

everyyear-say,20centsashare- andtopthatupwitha specialdividend iftheydo

better.

Forexample,StarHubsaidin2010itwouldpayoutatleastfivecentsashareevery

quarterforthatyear.Lastyear,itmaintainedthepayoutoffivecentsaquarter,or20

centsashare.

Firmsmayannouncesuchpoliciesor investorsmaydiscerntheapproachfrompayout

histories.

'Thefixeddividendshowsthatacompanyisconfidentofpayingatleastafixedsum,

whichmeansitisconfidentofitsbusinessandcashflowsgoingahead,'saidMrTan.

Investors'favouritesfordividendstocksincludeSingaporePressHoldingsandCerebos

Pacific.

*Bewareofforeigncurrencyrisk.

For firms that declare dividends in a foreign currency, returns in Singdollarswill be

impactedbyexchangerates.

Elec& Eltek declaresdividends inUSdollars,whileHutchison PortHoldingsTrust, a

businesstrustholdingportsinHongKongandsouthernChina,declaresinHongKong

dollars.

WithastrongSingdollar,evenifastockhasastrongdividendpayout,thereturncould

beerodedbytheexchangerate.


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Reitsandbusinesstrusts

Our top 20 list, compiledusingBloombergdata, isdominatedbyReits and business

trusts.

Thisisbecausebothareessentiallystructuredasyieldvehicles.Reitsdosobyholdingincome-generatingpropertyassetsandpayingouttherentsearnedasdistributionsto

unit-holders.

Business trusts hold various infrastructure assets, whichcan include ports or power

plants,anddistributethereturnstounit-holders.

Reitsrangefromthoseintheofficesector,suchasFrasersCommercialTrust,tothose

inlogistics,suchasMapletreeLogisticsTrust.

AscottResidenceTrustownsservicedapartmentsinAustralia,AsiaandEurope.

While Reits and business trusts are very popular for their regular returns, fund

managerswarnthatmuchdependsonthemanageroftheassets.

Amanagerhastobeabletoenhancetheassets-suchasensuringagoodtenantmixin

a mall and improving the physical condition to continue to attract tenants and

shoppers.

It should alsobuy good-quality assetsand buildings toboost thetrust's income and

yield.

Butthereneeds tobeabalance.Asmanagersearn fees from thesizeofthe assets

undermanagement, the temptation is to ambitiously buymanymore buildings and

assets.

Investorsmustdiscernifthesepurchasesaregoodforminorityunit-holders.

Sometimes,managerswillfinancepurchasesbyissuingnewequity,eitherviaarights

issue or an institutional placement, noted Mr Alastair Gillespie, global portfolio

managerforrealestateatPrincipalGlobalInvestors.

Thesemaydilutethevalueofexistingunitholdings.

Hesaidinvestorsshouldassessifthetrusthashigh-qualitymanagersthat'havebeen

proventoconsistentlyactinthebestinterestsofunit-holders'.

They should consistently supportmanagerswho 'pursue equity-funded asset growth

onlywhenitisaccretivetoexistingminorityunit-holders'.

MrGillespiealsosaidinvestorsshouldrecognisethewaythevariousReitsandbusiness

trustswillperformthroughoutthebusinesscycle.


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Generally,officeandhotelReitswillbethemostsensitivetoeconomiccycles,andtheir

sharepricescouldfluctuatemoreacrossthebusinesscycle,hesaid.

Ontheotherhand,retailandindustrialReitstendtobemorestableduetotherelative

stabilityofretailspendinginqualitymallsandthelongerleasetermsoftheindustrial

assets.Thesecanprovidemorestabilityacrossthecycle.

Other observers note that a Reit's or business trust's debt levels, and the size and

strength of its sponsor, are also factors to consider before investment. These will

determine,amongotherissues,ifthevehiclecanwithstandabaddownturn.

Beclearaboutwhyyouareinvestingindividendplays

OCBC'sMrMenonsaidthatyieldsareimportanttobeatthecurrenthighinflation,orat

leastreduceitserodingeffectsonone'swealth.

Inflationhitathree-yearhighof5.2percentlastyear.

MrMenonsaidthemarketisenteringa'newnormal',whereinvestorscouldbefaced

with lowerstock-marketreturnsas theglobaleconomy islikely togrowat amodest

paceforseveralyears.

Hesaidthatbetweenthe1990sand2006,itwasfairlyeasyforinvestorstomakequick

double-digit returns from the capital appreciation of their stocks. So many market

playerschosetotakeaspeculative,short-termviewofthemarket.

'Today,afterthesub-primecrisisof2007,theworldhaschangedcompletely.Markets

arevolatileandeconomicgrowthhasslowedconsiderably,'hesaid,addingthatasa

result, therearemore investors takingmedium- tolong-term viewsandbuying yield

stockstogrowtheirwealthslowlyandsteadily.

'Yieldstocksallowsteadygrowthofyourwealtheventhoughthereturnsmaynotbe

phenomenal,'hesaid.


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Highdividendsnotalwaysagoodthing

5thMarch2012

AndyMukherjee,SeniorWriter

TheStraitsTimes

2012SingaporePressHoldingsLimited

Companiespaydividendsforthesamereasonthatpeacocksunfurltheirfeathers:to

getaheadinthematinggame.

Byhanding out cash to investors at regular intervals, a companywoos shareholders

whomayhavereasonstobescepticalofitsfinancialstrength.

Likeallserenades,payingoutofdividends,too,hasitsspecialrules.First,adividend

shouldbeaneasy-to-remember,roundnumber.Second,itshouldeitherriseorremain

thesamefromyeartoyear,butitmustneverbereduced.Investorsdumpsharesofa

companythatcutsitsdividendsmorequicklythantheyareattractedtoacompanythat

raisesit.

Ifthechiefexecutiveofficer(CEO)ofadividend-payingcompanyeverhadanhonest

chatwithashareholder,itmightgosomethinglikethis:

CEO:'We'repleasedtoannouncea12-centdividendforthefullyear.'

Shareholder:'Lastyear,youpaid10cents.Youknowwhatittellsme,right?'

CEO:'Yeah,ittellsyouthatI'mcommittingmyselftopayingyouatleast12centsnext

year,ifnot14.'

Shareholder:'Andthatmeans...'

CEO: 'No investing in fancy projects that could go wrong; no growing a beard, or

wearingturtlenecks.I'mnotheretochangetheworld.'

Shareholder:'Precisely.Wewantyoutoworkonyourgolfhandicapinstead.'

Youreyebrowsarerisingindisbelief.Surelythereisamorefundamentalmotivebehind

payingofdividends?Thereisn't.Ifanything,injurisdictionswheredividendsaretaxed

but capital gainsare not, there iseven lessofa reason for shareholders towant to

receivethem.

Yet,thecultofdividendsexists.IthasbeenspawnedbythelikesofMrWarrenBuffett

andothervalue-investingfollowersofMrBenjaminGrahambecauseitgivesthemthe


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certaintythattheirmoneyisnotatthedisposalofamaverick.

Valueinvestorsdonotlikeexcitement.Theyliketheircompaniestobelikebondswith

stable,predictablecashflows,apartofwhichis rituallydistributed.Theirdreamchief

executive is someone whose presence is irrelevant. It's in fact better if the CEO is

largelyabsent.Atleasthewilldonoharmtothefranchise,especiallyifthecompanyhasbeensuccessfullysellingsugaredsodawaterfor100yearsormore.

Still don't believe me? Mr Gueorgui Kolev, a behavioural finance scholar, studied

publicly available data on golf handicaps of CEOs in the UnitedStates. His research

shows that golfing ability has no relationship with corporate performance, but it is

linkedtoCEOpay.

'Golfersearnmorethannon-golfersandpayincreaseswithgolfingability,'hewrites.In

otherwords,CEOsarepaidtobeoutonthegreen-aslongastheycanshowuponcea

quartertoannounceadividend.

Apple,themostvaluablecompanyontheplanet,doesnothandoutone.That'sfairly

wellknown.

But few people remember that the maker of Macintosh computers actually did

distributeregularpayouts-fourtimesayear-between1987and1995.Thatwasthe

periodinwhichApplewasfloundering.TheboardhadfiredMrSteveJobs,thefounder

ofthecompany,in1985;bythetimeMrJobscamebacktorunthecompanyin1997,it

wasalreadyteeteringonthevergeofbankruptcy.

Inhis second innings,MrJobsdidmany things.He launchedthe iMac, iTunes, iPod,

iPhoneandiPad.Buthedidnotreinstatethedividend.Didinvestorsmind?Peoplewho

boughtApplesharesatthestartof1998haveearned41percentayearannuallysince

then.Showmeahedgefundthathasdonebetter.

WithMrJobsdead,thereispressureonMrTimCook,thenewCEO,tounlockApple's

US$98billion(S$123billion)cashhoardandpaydividends.IfMrCookcavesin,hewill

basicallybeadmittingthatAppleisnowoldandboringandneedstoshowplumageto

remainattractivetoshareholders.

That'sjustwhathappenedtoMicrosoftwhenitbeganpayingdividendsin2003-ayear

beforerivalGoogle'sinitialpublicoffering(IPO).Buttowhatend?

Between1986and2002,Microsoftsharesreturned39percentayearwithoutpaying

outanycashtoinvestors.Between2003andlastmonth,sharepriceappreciationgave

Microsoftinvestorsapaltry2percentannually.Includethedividendsthataninvestor

tookandploughedrightbackintoMicrosoftshares,andthereturnsrisetoastillsub-

par5percentayear.

Meanwhile,Googlehasyettopayacashdividend.It'stryingtochangetheworld,for

instance by trying to pioneer driverless cars. Mr Buffett, who has professed his


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admirationforthecompany,doesnotownitsshares.

WhenAsiancompanies pay too high adividend, they are signalling their inability to

participateintheeconomyoftheworld'sfastest-growingregion.Whydoyouwantto

ownsuchcompanies?

In the final analysis, plumage isnot a substitute for performance. Peahensmay not

knowthis(bird-brainedastheyare),butinvestorsshould.

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Sharing Wisdom (5th March 2012)