The Malaysian/Singaporean stock market can be characterised by the occurrence of events which are of no real benefit to the existing shareholders and yet which excite them greatly.
This is referring to the large numbers of bonus announcements, rights issues, property injections, take-overs and mergers which have made their appearnace in many years.
Most of these events are of little, if any, real economic benefit to the existing shareholders of the companies involved. Despite this, the price of shares of a company involved in an event of this nature tends to rise sharply. These events are, in the main, irrelevant and some of them may even be damaging.
According to the dividend yield approach to share valuation, a share can have increased value only if there is a likelihood that its dividend will rise faster than originally expected.
In what way can events like bonuses, rights, mergers and reorganizations in themselves improve the future dividend picture of a company. If these events cannot lead to such an increase, the share surely does not deserve a higher valuation.
Here is an often quoted advice to first time share buyers:
A cow for its milk,
Bees for their honey,
And shares, by golly,
For their dividend.
No comments:
Post a Comment