Monday 25 March 2013
Cash-rich Dutch Lady can sustain high dividends
Cash-rich Dutch Lady can sustain high dividends
Written by Insider Asia
Wednesday, 20 March 2013
Stocks that pay steady dividends are always attractive to investors. For
those who are more risk averse, high dividend payout levels and yields
often provide good support to share prices amid short-term market
volatility. For others, consistent dividends are a dependable source of
income.
In the long run, companies that maintain high payouts are usually those
operating in mature industries with lower capital expansion requirements.
While expected to grow at a modest pace, they are also more resilient
during economic downturns.
Generous dividends that are supported by strong earnings growth over
the past few years are among the key driving forces behind the
handsome share price gains for DUTCH LADY MILK INDUSTRIES BHD
[] (RM47.28).
The company’s net profit more than doubled over the past three years, to
RM123.4 million in 2012 from RM60.4 million in 2009. The outsized
earnings growth relative to sales — which increased by some 28% over
the same period — was attributed to a combination of factors, including
focusing on key growth products, having a more favourable sales mix
(exiting from the low margin creamer business), and enjoying economies of
scale as well as cost management.
The company’s range of powdered and liquid milk as well as yoghurt
products is estimated to account for some 20% of the local dairy market.
With the stronger cash flow from operations and minimal need for capital
expenditure, Dutch Lady’s cash has been piling up fast. Net cash grew
to RM204.8 million at the end of last year from RM41.7 million at end-
2009.
This, in turn, has allowed the company to raise its dividend payments.
Net dividends jumped to RM2.60 per share last year from 73.8 sen
per share for 2009.
Its strong balance sheet implies sustainability of dividends at a high level.
Capital expenditure (capex) is expected to rise in the
current year, by a reported RM15 million to expand capacity for the
company’s liquid milk production, .....
http://www.theedgemalaysia.com/business-news/233480-cash-rich-dutch-lady-can-sustain-high-dividends-.html
CIMB Research maintains Outperform on Maybank, target price RM10.80
CIMB Research maintains Outperform on Maybank, target price RM10.80
Written by theedgemalaysia.com
Wednesday, 20 March 2013
KUALA LUMPUR (March 20): CIMB Research has maintained its
Outperform rating on MALAYAN BANKING BHD [] at RM9.07 with a
target price of RM10.80 and said despite being one of the largest Islamic
banking players, Maybank Islamic still saw ample opportunities for
growth locally and abroad.
In a note March 19, the research house said Indonesia was still
underpenetrated and there were opportunities to expand into South Asia
or even HK/China.
“We see the regional expansion of its Islamic banking (IB) business as a
long-term catalyst for Maybank as it takes time to penetrate emerging
markets.
“The near-term challenges include the lack of infrastructure and legal
framework for IB. Maybank's DDM-based target price (11.8% COE; 5%
LT growth) is intact. Maintain Outperform given the positive growth
prospects in the region,” it said.
http://www.theedgemalaysia.com/business-news/233452-cimb-research-maintains-outperform-on-maybank-target-price-rm1080.html
Benjamin Graham's Intelligent Investor - What the Enterprising Investor should Buy
Portfolio
Policy for the Enterprising Investor - the Positive Side
•
•Selection of Bonds
•In
addition to the US Bonds described in previous chapters, US guaranteed bonds
like “New Housing Authority Bonds” and “New Community Bonds” (both of which
were widely available in 1972), as well as tax free municipal bonds serviced by
lease payments of A rated corporations, are good investments.
•
•Selection of Bonds
•Lower
quality bonds may be
attainable at true bargains in “special situations”, however these have
characteristics that are more similar to common stocks.
•
•Selection of Stocks
•The
enterprising investor usually conducts 4 activities:
1. Buying
in low markets and selling in high markets.
2. Buying carefully
chosen growth stocks.
3. Buying bargain
issues.
4. Buying into “special
situations”.
•
•1. Market
timing -
This is a difficult proposition at best. Market timing is more of a
speculative activity.
•
•2. Growth
Stocks –
This also is difficult. These issues are already fully priced. In
fact, their growth may cease at any time. As a firm grows, its very size
inhibits further growth at the same rate. Therefore, the investor risks
not only overpaying for growth stocks, but also choosing the wrong
ones. In fact, the average growth fund does not fair much better
than the indexes.
Also, growth
stocks fluctuate widely in price over time, which introduces a speculative element. The more
enthusiastic the public becomes, the more speculative the stock becomes as its
price rises in comparison to the firm’s earnings.
•
•3. Special
Situations – This
is a specialty field that includes workouts in bankruptcy and risk arbitrage
arising from mergers and acquisitions. However, since the 1970s, this
field has become increasingly risky with available returns less than were
previously realizable. In addition, this field requires a special
mentality as well as special equipment. Thus, to the common investor,
this area is highly speculative.
•
•4. Bargain
Issues – This
is the area in which the common investor has the enterprising investor has the
greatest chance for long term success.
•
•The market often undervalues large companies undergoing
short-term adversity.
•The
market also will undervalue small firms in similar circumstances.
•Large
firms generally possess the capital and intellectual resources necessary to
carry the firm through adversity; plus, the market recognizes the recovery of
large firms faster than it does for small firms.
•Small firms are more likely to lose profitability that is
never to be regained,
and when earnings do improve, they may go unnoticed by the market.
•
•One
way to profit from this strategy is to purchase those issues of the DJIA that
have either the highest dividend yields or the lowest earnings multiples.
•The
investment returns using this method should result in a return approximately
50% better than purchasing equal amounts of all 30 DJIA issues.
•This
is a sound starting point for the enterprising investor.
•
•Caution
must be paid not to
purchase companies that are inherently speculative due to economic swings, such
as the Big 3 automakers.
•These
firms have high
prices and low multipliers in their good years, and low prices and high
multipliers in their bad years.
•When
earnings are
significantly low, the P/E is high to adjust for the underlying value of the
firm during all economic periods.
•To avoid this mistake, the stock selected should have a low
price in reference to past average earnings.
•
•Bargain issues are defined as those that worth considerably
more than their market price based upon a thorough analysis of the
facts.
•To be a true bargain, an issue’s price must be at least 50% below its real value.
•This
includes bonds and preferred stocks when they sell far under par.
•
•
•There
are two ways to determine the true value of a stock.
•Both
methods rely upon estimating future earnings.
•
•In
the first method, the cumulative future earnings are discounted at an
appropriate discount rate, or in the alternative, the earnings are multiplied
by an appropriate p/e multiple.
•
•
•In the second method, more attention is paid to the realizable
value of the assets with particular emphasis on the net current assets or
working capital.
•
•
•During
bear markets, many issues are bargains by this definition.
•Courage to purchase these issues in depressed markets
often is later vindicated.
•In any case, bargains can be found in almost all market
conditions (except for the highest) due to the market’s vagaries.
•The
market often makes mountains out of molehills.
•In
addition to currently disappointing results, a lack of interest also can cause
an issue to plummet.
•
•
•Many
stocks, however, never recover.
•Determining
which stocks have temporary problems from those that have chronic woes is not
easy.
•
•Earnings should be proximately stable for a minimum of 10
years with no earnings deficit in any year.
•In
addition, the firm should have sufficient financial strength to meet future
possible setbacks.
•
•Ideally, the large and prominent company should be selling below
both its average price and its past average price/earnings multiple.
•This
rule usually
disqualifies from investment companies like Chrysler, whose low price years are
accompanied by high price earnings ratios. The Chrysler type of roller
coaster is not a suitable investment activity.
•
•
•The easiest value to recognize is one where the firm sells
for the price of its net working capital after all long-term obligations. This means
that the buyer pays nothing for fixed assets like buildings and
machinery.
•
•In
1957, 150 common stocks were considered bargain issues. Of these, 85
issues appeared in the S & P Monthly Guide. The gain for these issues
in two years was 75%, compared to 50% for the S & P industrials. This
constitutes a good investment operation. During market advances bargain
issues are difficult to find.
•
•Secondary
issues, those that
are not the largest firms in the most important industries, but that otherwise
possess large market positions, may be purchased profitably under the
conditions that follow.
•Secondary
issues should have a
high dividend yield, their reinvested earnings should be substantial compared
to their price, and the issues should purchased well below their market
highs.
•Regardless
of the circumstance,
purchasing a firm’s issue prior to its acquisition usually results in a
realized gain for the investor.
•
•General Rules for Investment
•The
aggressive investor
must have a considerable knowledge of security values and must devote enough
time to the pursuit as to consider it a business enterprise.
•Those
who place themselves
in an intermediate category between defensive and aggressive are likely to
produce only disappointment. There
is no middle ground.
•Thus, a majority of
security owners should position themselves as defensive investors who seek
safety, simplicity, and satisfactory
results.
•
•General Rules for Investment
•As stated earlier, all investors should avoid purchase at full
price of all foreign bonds, ordinary preferred stocks, and secondary
issues.
•“Full price” is defined to be the fair value of a common stock
or the par value of a bond.
•
•General Rules for Investment
•Most
secondary issues
fluctuate below fair value and only surpass their value in the upper reaches of
a bull market.
•Thus, the only logic for
owning common secondary issues is that they are purchased far below their worth
to a private owner, that is, on a bargain basis.
•In
secondary companies,
the average common share is worth much less to an outside investor than the
share is worth to a controlling owner.
•In
any case, the
distinction between a primary and secondary issue often is difficult to
determine.
•
The Intelligent Investor by Benjamin Graham: What the Enterprising Investor should Avoid.
Portfolio Policy for the Enterprising Investor – the Negative Side
•
•What to Avoid
•The
aggressive investor should start with the same base as the defensive investor,
dividing the portfolio more or less equally between stocks and bonds.
•
•What to Avoid
•To
avoid losses or
returns lower than that of the defensive investor, the aggressive investor
should steer clear of the following pitfalls:
1. Avoid
all preferred stocks.
Preferred stock rarely possesses upside component that is the basis for owning
common stock. Yet compared to debt, preferred stock affords little
protection. Since dividends can be suspended at anytime, unlike debt, why
not just own debt instead?
2. Avoid
inferior (“high yield” or “junk”) bonds unless such bonds are purchased at least 30% below their par
value for high coupon issues, or 50% below par value for other
issues. The risk of these issues is rarely worth the interest premium
that they offer.
3. Avoid
all new issues.
4. Avoid
firms with “excellent” earnings limited to the recent past.
•
•Quality
bonds should have “Times Interest Earned” ratio, that is EBIT/net interest, of
at least 5x.
•
•
•Preferred stocks, convertible bonds, and other high yield or
“junk” bonds often trade significantly below par during their issue, so
purchasing them at par is unwise.
•
•During
economic downturns, lower quality bonds and preferred stocks often experience
“severe sinking spells” where they trade below 70% of their par value.
•
•For
the minor advantage
in annual income of 1%-2%, the buyer risks losing a substantial amount of
capital, which is bad business.
•Yet
purchasing these
issues at par value provides no ability to achieve capital gains.
•
•Therefore, unless
second grade bonds can be purchased at a substantial discount, they are bad
deals!
•
•
•Foreign Government Bonds are worse than domestic
high yield junk, for the owner of foreign obligations has no legal or other
means of enforcing their claims.
•This
has been true since 1914.
•Foreign bonds should be avoided at all costs.
•
•Investors
should be wary of all new issues.
•New issues are best left for speculators.
•In
addition to the usual risks, new issues have salesmanship behind them, which
artificially raises the price and requires an additional level of
resistance.
•Aversion
becomes paramount as the quality of these issues decrease.
•
•During
favorable periods,
many firms trade in their debt for new bonds with lower coupons.
•This
inevitably results in
too high a price paid for these new issues, which then experience significant
declines in principal value.
•
•
•Common
stock issues take two forms - - those that are already traded publicly
(secondary issues) and those that are not already traded publicly (IPOs).
•
•Stock
that is already publicly traded does not ordinarily call for active selling by
investment houses, whereas the issue of new stock requires an active selling
effort.
•
•Most
new issues are sold for account of the controlling interests, which allows them
to cash-in their equity during the next several years and to diversify their
own finances.
•
•Not only does danger arise from the poor character of
businesses brought public, but also from the favorable market conditions that permit
initial public offerings.
•
•
•New
issues during a bull market usually follow the same cycle.
•As
a bull market is established, new issues are brought public at reasonable
prices, from which adequate profits may be made.
•As
the market rise continues, the quality of new issues wanes.
•In
fact, one important signal of a market downturn is that new common stocks of
small, nondescript firms are offered at prices higher than the current level
for those of medium sizes with long market histories.
•
•In many cases, new issues of common stock lose 75% or more of
their initial value.
•Thus, the investor should
avoid new issues and their salespeople.
•These issues may be excellent values
several years after their initial offering, but that will be when nobody else
wants them.
•
•
Sunday 24 March 2013
Benjamin Graham: Three Timeless Principles
Legendary Investor
Benjamin Graham: Three Timeless Principles
Daniel Myers, Investopedia, 02.23.09, 06:00 PM ESTWarren Buffett is the world's richest human. But he may owe it all to his teacher Benjamin Graham.
 |
| Benjamin Graham |
Warren Buffett is widely considered to be one of the greatest investors of all time, but if you were to ask him who he thinks is the greatest investor, he would probably mention one man: his teacher Benjamin Graham. Graham was an investor and investing mentor who is generally considered to be the father of security analysis and value investing.
His ideas and methods on investing are well documented in his books Security Analysis(1934) and The Intelligent Investor (1949), which are two of the most famous investing books. These texts are often considered to be requisite reading material for any investor, but they aren't easy reads. Here, we'll condense Graham's main investing principles and give you a head start on understanding his winning philosophy.
Principle No. 1: Always Invest With a Margin of Safety
Margin of safety is the principle of buying a security at a significant discount to its intrinsic value, which is thought to not only provide high-return opportunities but also to minimize the downside risk of an investment. In simple terms, Graham's goal was to buy assets worth $1 for 50 cents. He did this very, very well.
To Graham, these business assets may have been valuable because of their stable earning power or simply because of their liquid cash value. It wasn't uncommon, for example, for Graham to invest in stocks in which the liquid assets on the balance sheet (net of all debt) were worth more than the total market cap of the company (also known as "net nets" to Graham followers). This means that Graham was effectively buying businesses for nothing. While he had a number of other strategies, this was the typical investment strategy for Graham. (For more on this strategy, read "What Is Warren Buffett's Investing Style?")
This concept is very important for investors to note, as value investing can provide substantial profits once the market inevitably re-evaluates the stock and raises its price to fair value. It also provides protection on the downside if things don't work out as planned and the business falters. The safety net of buying an underlying business for much less than it is worth was the central theme of Graham's success. When stocks are chosen carefully, Graham found that a further decline in these undervalued equities occurred infrequently.
While many of Graham's students succeeded using their own strategies, they all shared the main idea of the "margin of safety."
Principle No. 2: Expect Volatility and Profit From It
Investing in stocks means dealing with volatility. Instead of running for the exits during times of market stress, the smart investor greets downturns as chances to find great investments. Graham illustrated this with the analogy of "Mr. Market," the imaginary business partner of each and every investor. Mr. Market offers investors a daily price quote at which he would either buy an investor out or sell his share of the business. Sometimes, he will be excited about the prospects for the business and quote a high price. Other times, he will be depressed about the business's prospects and will quote a low price.
Because the stock market has these same emotions, the lesson here is that you shouldn't let Mr. Market's views dictate your own emotions or, worse, lead you in your investment decisions. Instead, you should form your own estimates of the business's value based on a sound and rational examination of the facts. Furthermore, you should only buy when the price offered makes sense and sell when the price becomes too high. Put another way, the market will fluctuate--sometimes wildly--but rather than fearing volatility, use it to your advantage to get bargains in the market or to sell out when your holdings become way overvalued.
--Dollar-cost averaging: Achieved by buying equal dollar amounts of investments at regular intervals. It takes advantage of dips in the price and means that an investor doesn't have to be concerned about buying his or her entire position at the top of the market. Dollar-cost averaging is ideal for passive investors and alleviates them of the responsibility of choosing when and at what price to buy their positions. (For more, read "DCA: It Gets You In At The Bottom" and "Dollar-Cost Averaging Pays.")Here are two strategies that Graham suggested to help mitigate the negative effects of market volatility:
--Investing in stocks and bonds: Graham recommended distributing one's portfolio evenly between stocks and bonds as a way to preserve capital in market downturns while still achieving growth of capital through bond income. Remember, Graham's philosophy was, first and foremost, to preserve capital, and then to try to make it grow. He suggested having 25% to 75% of your investments in bonds, and varying this based on market conditions. This strategy had the added advantage of keeping investors from boredom, which leads to the temptation to participate in unprofitable trading (i.e., speculating). (To learn more, read"The Importance Of Diversification.")
Principle No. 3: Know What Kind of Investor You Are
Graham said investors should know their investment selves. To illustrate this, he made clear distinctions among various groups operating in the stock market.
Active vs. passive:Graham referred to active and passive investors as "enterprising investors" and "defensive investors."
You only have two real choices: The first is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. If this isn't your cup of tea, then be content to get a passive, and possibly lower, return but with much less time and work. Graham turned the academic notion of "risk = return" on its head. For him, "work = return." The more work you put into your investments, the higher your return should be.
If you have neither the time nor the inclination to do quality research on your investments, then investing in an index is a good alternative. Graham said that the defensive investor could get an average return by simply buying the 30 stocks of the Dow Jones industrial average in equal amounts. Both Graham and Buffett said getting even an average return--for example, equaling the return of the S&P 500--is more of an accomplishment than it might seem.
The fallacy that many people buy into, according to Graham, is that if it's so easy to get an average return with little or no work (through indexing), then just a little more work should yield a slightly higher return. The reality is that most people who try this end up doing much worse than average.
In modern terms, the defensive investor would be an investor in index funds of both stocks and bonds. In essence, they own the entire market, benefiting from the areas that perform the best without trying to predict those areas ahead of time. In doing so, an investor is virtually guaranteed the market's return and avoids doing worse than average by just letting the stock market's overall results dictate long-term returns. According to Graham, beating the market is much easier said than done, and many investors still find they don't beat the market. (To learn more, read "Index Investing.")
Speculator vs. investor:Not all people in the stock market are investors. Graham believed that it was critical for people to determine whether they were investors or speculators. The difference is simple: An investor looks at a stock as part of a business and the stockholder as the owner of the business, while the speculator views himself as playing with expensive pieces of paper with no intrinsic value. For the speculator, value is only determined by what someone will pay for the asset. To paraphrase Graham, there is intelligent speculating as well as intelligent investing--just be sure you understand which you are good at.
Commentary
Graham's basic ideas are timeless and essential for long-term success. He bought into the notion of buying stocks based on the underlying value of a business and turned it into a science at a time when almost all investors viewed stocks as speculative. Graham served as the first great teacher of the investment discipline, as evidenced by those in his intellectual bloodline who developed their own. If you want to improve your investing skills, it doesn't hurt to learn from the best; Graham continues to prove his worth in his disciples, such as Buffett, who have made a habit of beating the market.
Below you will find a table of stocks Forbes recently identified based on the Benjamin Graham screen of the American Association of Individual Investors.
Company
|
Description
|
Market Cap ($mil)
|
Price/Earnings
|
Yield
|
Auto & truck manufacturers
|
152
|
3.1
|
2.1%
| |
Water transportation
|
168
|
2.7
|
14.5
| |
Retail
|
608
|
3.5
|
538.6
| |
Iron & steel
|
2,007
|
2.1
|
5
| |
Iron & steel
|
4,006
|
1.9
|
3.5
|
Source: AAII Stock Investor Pro
--The price-to-earnings ratio is among the lowest 10% of the database (percent rank less than or equal to 10).
--The current ratio for the last fiscal quarter (Q1) is greater than or equal to 1.5.
--The long-term debt to working capital ratio for the last fiscal quarter (Q1) is greater than 0% and less than 110%.
--Earnings per share for each of the last five fiscal years and for the last 12 months have been positive.
--The company intends to pay a dividend over the next year (indicated dividend is greater than zero).
--The company has paid a dividend over the last 12 months.
--Earnings per share for the last 12 months is greater than the earnings per share from five years ago (Y5).
--Earnings per share for the last fiscal year (Y1) is greater than the earnings per share from five years ago (Y5).
--The price-to-book ratio is less than or equal to 1.2.
--The current ratio for the last fiscal quarter (Q1) is greater than or equal to 1.5.
--The long-term debt to working capital ratio for the last fiscal quarter (Q1) is greater than 0% and less than 110%.
--Earnings per share for each of the last five fiscal years and for the last 12 months have been positive.
--The company intends to pay a dividend over the next year (indicated dividend is greater than zero).
--The company has paid a dividend over the last 12 months.
--Earnings per share for the last 12 months is greater than the earnings per share from five years ago (Y5).
--Earnings per share for the last fiscal year (Y1) is greater than the earnings per share from five years ago (Y5).
--The price-to-book ratio is less than or equal to 1.2.
http://www.forbes.com/2009/02/23/graham-buffett-value-personal-finance_benjamin_graham.html
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