A practical analysis of dividend

A Practical Analysis Of Unilever Plc's Dividend

By Royston Wild | Fool.co.uk

The ability to calculate the reliability of dividends is absolutely crucial for investors, not only for evaluating the income generated from your portfolio, but also to avoid a share-price collapse from stocks where payouts are slashed.

There are a variety of ways to judge future dividends, and today I am looking at Unilever (NYSE: UL - news) to see whether the firm looks a safe bet to produce dependable payouts.

Forward dividend cover

Forward dividend cover is one of the most simple ways to evaluate future payouts, as the ratio reveals how many times the projected dividend per share is covered by earnings per share. It can be calculated using the following formula:

Forward earnings per share ÷ forward dividend per share

Unilever is expected to provide a dividend of 88.8p per share in 2013, according to City numbers, with earnings per share predicted to register at 139.1p. The widely-regarded safety benchmark for dividend cover is set at 2 times prospective earnings, but Unilever falls short of this measure at 1.6 times.

Free cash flow

Free cash flow is essentially how much cash has been generated after all costs and can often differ from reported profits. Theoretically, a company generating shedloads of cash is in a better position to reward stakeholders with plump dividends. The figure can be calculated by the following calculation:

Operating profit + depreciation & amortisation - tax - capital expenditure - working capital increase

Free cash flow increased to €5.14bn in 2012, up from €3.69bn in 2011. This was mainly helped by an upswing in operating profit -- this advanced to €7bn last year from ?6.43bn in 2011 -- and a vast improvement in working capital.

Financial gearing

This ratio is used to gauge the level debt a company carries. Simply put, the higher the amount, the more difficult it may be to generate lucrative dividends for shareholders. It can be calculated using the following calculation:

Short- and long-term debts + pension liabilities - cash & cash equivalents

___________________________________________________________            x 100

                                      Shareholder funds

Unilever's gearing ratio for 2012 came in at 56.6%, down from 59.5% in the previous 12 months. The firm was helped by a decline in net debt, to €7.36bn from €8.78bn, even though pension liabilities edged higher. Even a large decline in cash and cash equivalents, to €2.47bn from €3.48bn, failed to derail the year-on-year improvement.

Buybacks and other spare cash

Here, I'm looking at the amount of cash recently spent on share buybacks, repayments of debt and other activities that suggest the company may in future have more cash to spend on dividends.

Unilever does not currently operate a share repurchase programme, although it remains open to committing capital to expand its operations around the globe. Indeed, the company is attempting to ratchet onto excellent growth in developing regions as consumer spending in the West stagnates -- the firm saw emerging market sales rise 10.4% in quarter one versus a 1.9% fall in developed regions.

The firm remains dogged in its attempts to acquire a 75% stake in India's Hindustan Unilever (BSE: HUL.BO - news) , for example, and I expect further activity to materialise in the near future. Meanwhile, Unilever is looking to reduce its exposure to stagnating markets by divesting assets, exemplified by the recent sale of its US frozen foods business.

An appetising long-term pick

Unilever's projected dividend yield for 2013 is bang in line with the FTSE 100 (FTSE: ^FTSE - news) average of 3.3%. So for those seeking above-par dividend returns for the near-term, better prospects can be found elsewhere. Still, the above metrics suggest that the firm's financial position is solid enough to support continued annual dividend growth.

And I believe that Unilever is in a strong position to grow earnings strongly, and with it shareholder payouts, further out. Galloping trade in developing markets, helped by the strength of its brands -- the company currently boasts 14 '€1 billion brands' across the consumer goods and food sectors -- should significantly bolster sales growth and thus dividend potential in my opinion.

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> Royston does not own shares in Unilever. The Motley Fool has recommended shares in Unilever.

http://uk.finance.yahoo.com/news/practical-analysis-unilever-plcs-dividend-090040474.html

Taking small steps out of cash

Generating the returns required for a longer retirement needn't mean a wholesale change of strategy, says Alex Hoctor-Duncan.

05 Jul 2013

There are three reasons why investors stay in cash: 
1.  they like the income, 
2.  they like the idea of their money being protected and 
3.  they worry about volatility. 
Investors also like the capital preservation that cash offers.

But there is inherent risk. Returns are low, so investors run the risk of seeing their purchasing power ravaged by inflation over the long term.

I sense that people are starting to recognise the limitations of cash. They feel they should look to make their money work harder, particularly as they are likely to be living longer.

However, what they want to achieve with their savings – a secure retirement with a good income – and what they are doing to achieve it, are not properly aligned. Simply saving in cash is not necessarily going to generate the returns required for a longer retirement.

This needn’t mean a wholesale change of strategy; it could be more about taking small steps out of cash, about consulting an IFA and revisiting their financial goals. It could mean looking again at how and where they invest – in the UK or internationally – and working with the adviser to set new objectives and plot the path towards those goals.

Related Articles

• Identify investment goals 
  05 Jul 2013
• Where best to put my money? 
  05 Jul 2013
• Financing the future: live long and prosper 
  05 Jul 2013

If taking small steps is the path an investor chooses, the smart option is not to take all the money out of traditional cash or bond investments. Taking a portion of that money and looking for investments which provide an element of more flexible income could be one step that less risk-averse investors could take towards achieving their goals.

The earlier they take action the better, but it is never too late. However, wait 10 years and contribution levels might need to be double what they would have been.

Moving out of cash and safe haven investments in search of higher returns will involve accepting a greater risk of capital loss. You may get back less than you originally invested. Past performance is not necessarily a guide to future performance.

http://www.telegraph.co.uk/sponsored/finance/blackrock/10121192/blackrock-investment-strategy.html

Financing the future: live long and prosper. Plan for an extended future.

With the economic crisis leaving interest rates sitting below the level of inflation, independent financial advisers can help us change the way we look at savings.

For decades in the run-up to the financial crisis, most people took a safety-first approach to saving and investing for the long term.

And for good reason. Putting their savings into a deposit account or long-term savings bond offered the safest of traditional safe havens – they could relax, confident that their money would be secure and would grow.

But piling up cash in these once-safe havens is no longer the one-way bet that it used to be. The places we have long thought of as havens are rather less safe today than they used to be, for two main reasons.

The first is that as the financial world has shifted, so have the risks that we face. In the past, you could put your money on deposit at a bank or building society, or use it to buy super-safe government bonds, and be confident of earning a rate of interest that would allow your capital to grow faster than prices were rising. That enabled you to preserve the purchasing power of your money over the years while keeping it safe.

It might not grow as fast as it would if you had chosen other, riskier sorts of investment – but at least inflation wouldn’t erode the value of your nest egg.

Related Articles

• Small steps out of cash 
  05 Jul 2013
• Identify investment goals 
  05 Jul 2013
• Where best to put my money? 
  05 Jul 2013

But you can no longer rely on that old certainty. Savings rates on virtually all deposit accounts and yields on government bonds are stuck well below the rate of inflation, which changes the picture enormously. Prices are now rising faster than your savings can grow, which means that year by year your money can buy less – and therefore one of the main attractions of these traditional safe-haven investments has vanished.

The second big issue is that, for most of us, the long term is getting a lot longer than was the case for previous generations, with life expectancy rising rapidly. According to the Office for National Statistics, in 1981 a man of 65 could expect to live another 13.1 years. By 2009, this life expectancy had risen to 18 years. For women, the equivalent figures were 17 years in 1981 and 20.6 years by 2009.

The conclusion is obvious: longer life is nothing if not a blessing, but the money we salt away is going to have to work harder and support us through old age.

In a world where savings earn less than the rate of inflation and will have stretch further, sitting on cash looks a less viable option. By the same token, buying government bonds, even though they are backed by the Treasury’s promise to repay your capital in full, looks increasingly risky given that the yields they offer are also well below inflation.

For people who know they need to plan for an extended future – and one in which the easy answers do not work as well – this is a challenging time.

So over the coming weeks, the Telegraph will offer ways to reconsider long-term financial plans, bearing in mind the risks that inflation and miserly interest rates now pose to savings.

Many will want to take financial advice to help decide how to approach these issues, but will also want to feel confident that they know enough to have a proper conversation with their adviser.

This series will equip them to ask the right questions – what investments should they be considering to balance their need for growth with their appetite for risk? What are the merits of passive investing versus active management of their money? Should they be looking to international markets to help improve their returns? Where do they invest for the additional income they need?

For most people who are trying to build a fund for the long term but at the same time do not want to take on excessive risks, the answer to these problems is going to involve some combination of working longer, saving more and investing their money in different ways.

Inevitably, that means we are all going to have to accept rather more risk when investing for the long term. Therefore, a key element of the series will be to help people to dig deeper when they talk to their adviser and make sure that they understand the kinds of risk that go with the various investment options that are open to them.

The financial crisis and its after-effects have changed the rules of investing for many years to come. The old ways of doing things no longer represent a risk-free option – we need to take a different approach.

http://www.telegraph.co.uk/sponsored/finance/blackrock/10121155/future-finance-investments.html

Industrial stocks on my radar screen

Industrial Stocks on my radar screen
CBIP
Daibochi
Fima
Favelle Favco
Hartalega
Petgas
Scientex
Wellcall



CBIP

ROE 48.19%
EPS CAGR 5 Yrs 15.9%
DY High 7.0% - Low 4.7%
D/E 0.04
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 520.35 m
LFY Earnings 239.95 m
Gross Margin 86%
Market Cap RM 783.39 m
Shares (m) 272.01
Per Share price RM 2.88
P/E 3.26


Daibochi

ROE 16.38%
EPS CAGR 5 Yrs 23.2%
DY High 11.1% - Low 4.8%
D/E 0.20
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 278.75 m
LFY Earnings 24.64 m
Gross Margin 14.42%
Market Cap RM 413.28 m
Shares (m) 113.85
Per Share price RM 3.63
P/E 16.8


Favelle Favco

ROE 18.07%
EPS CAGR 5 Yrs 42.3%
DY High 5.2% - Low 2.9%
D/E 0.23
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 696.47 m
LFY Earnings 61.75 m
Gross Margin 17.08%
Market Cap RM 716.56 m
Shares (m) 212.00
Per Share price RM 3.38
P/E 11.60



FIMA

ROE 16.52%
EPS CAGR 5 Yrs 21.7%
DY High 5.5% - Low 3.7%
D/E 0.00
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 300.17 m
LFY Earnings 71.91 m
Gross Margin 45.69%
Market Cap RM 505.35 m
Shares (m) 80.47
Per Share price RM 6.280
P/E 7.03


Hartalega

ROE 32.51%
EPS CAGR 5 Yrs 40.5%
DY High 4.4% - Low 2.6%
D/E 0.04
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 931.07 m
LFY Earnings 201.38 m
Gross Margin 31.86%
Market Cap RM 4607.9 m
Shares (m) 732.58
Per Share price RM 6.29
P/E 22.9
DCA  Strong


Petgas

ROE 15.33%
EPS CAGR 5 Yrs 9.8%
DY High 4.2% - Low 2.9%
D/E 0.23
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 3576.77 m
LFY Earnings 1405.21 m
Gross Margin 49.49%
Market Cap RM 41,553.33 m
Shares (m) 1978.73
Per Share price RM 21.00
P/E 29.6
DCA  Strong


Scientex

ROE 15.96%
EPS CAGR 5 Yrs 16.2%
DY High 5.8% - Low 3.8%
D/E 0.11
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 881.03 m
LFY Earnings 83.92 m
Gross Margin 20.18%
Market Cap RM 1331.7 m
Shares (m) 230.00
Per Share price RM 5.790
P/E 15.9


Wellcall

ROE 28.82%
EPS CAGR 5 Yrs 9.2%
DY High 11.2% - Low 7.3%
D/E 0.00
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 154.19 m
LFY Earnings 23.34 m
Gross Margin 25.30%
Market Cap RM 316.87 m
Shares (m) 132.58
Per Share price RM 2.39
P/E 13.6


DCA = durable competitive advantage

Identify your investment goals. Gone are the days of 5pc to 10pc interests on cash accounts.

Gone are the days of 5pc to 10pc interest on cash accounts, so if people want this type of return they need to look elsewhere.

Since the Funding for Lending scheme came in, banks have not needed to attract money from savers. Today, just 14 accounts out of almost 900 pay rates that beat inflation.

With inflation seemingly settled between 2pc and 3pc for the time being, assuming 0.5pc interest on most savings, then £1,000 cash savings would be worth £905 after five years and £820 after 10. That’s quite a reduction in real spending power.

Related Articles

• Financing the future: live long and prosper 
  05 Jul 2013
• Small steps out of cash 
  05 Jul 2013
• Where best to put my money? 
  05 Jul 2013

Long-term investors who are wary that markets have risen so much and are thinking about how to limit any losses should markets fall again, could in turn consider a bond or absolute return fund.

The latter has had some bad press lately, but there are a number of funds which have done what they set out to do consistently over a decent period of time: namely, produced positive returns in all markets.

In a normal inflationary environment, bonds would be the asset class to suffer most as interest rates would rise. However, the new governor of the Bank of England has said he won’t be targeting inflation, but growth instead, so while inflation may rise further, interest rates will probably remain low for some time.

Investors could consider investing in assets that should do better when inflation is higher, such as equities and real assets such as commodities and property.

Start by identifying what your goals are – both short and long-term. Then think about how much you are willing to lose in the short term and how comfortable you are with seeing your investment go up and down.

http://www.telegraph.co.uk/sponsored/finance/blackrock/10121187/identify-investment-goals.html?WT.mc_id=605621&source=TrafficDriver

Maybank Research says Hua Yang is “hot”

Updated: Thursday July 11, 2013 MYT 2:26:55 PM

KUALA LUMPUR: Maybank Research is picking Hua Yang Berhad, a housing developer specialising in homes costing under RM500,000, as its “hot stock” pick with a target price of RM3.73 from its current trading price of around RM3.03.

It said on top of sound management and solid recent performance, Hua Yang was unlikely to be affected by the credit-tightening measures introduced by Bank Negara as it was in the affordable property segment. 

In fact, it stood to benefit from Budget 2013 due to improvements expected to be made to the My First Home Scheme.

Citing the Population and Housing Census Malaysia 2010 report, the research house pointed out that 25% of Malaysians purchasing property are first-time home buyers within the 25-40 age range. Hua Yang properties, particularly in Johor and Perak, are priced between RM100-400k a unit and 70% of its customers are first-time home buyers, and as such it was in a growth good position.  

To date, Hua Yang has completed more than 13,000 residential, commercial and industrial projects with a gross development value (GDV) of more than RM1.8bil. It is primarily focused in three main regions – Selangor, Johor and Perak, with projects such as One South in Selangor, Taman Pulai Indah/Hijauan in Johor and Bandar Universiti Seri Iskandar (BUSK) in Perak.

“Consensus estimates HYB to make a net profit of RM89.7mil in financial year ended March 2014, translating to a five-year earnings compound annual growth rate (CAGR) of 59%.  The stock is trading at a prospective CY14 PER of 5.6x, lower than its small/mid-cap peers’ average of 6.5x despite a superior return on equity (ROE) of 23%.

“It paid a dividend per share of 12 sen in the financial year ended March 2013 (33% net profit payout) and is expected to pay 14 sen dividend per share in the financial year ended March 2014, which translates to a net yield of 4.6%.

HYB has unbilled sales of MYR523m as at Mar 31, 2013 and plans to launch RM1bil worth of new projects in the financial year end March 2014, including six new projects in the Klang Valley, Johor and Perak. The group has 1,505 acres of landbank, of which 700 acres are undeveloped.  

It has a remaining GDV of RM4.05bil which should last the group another 10 years. Recent land acquisitions in Desa Pandan, Puchong, Seri Kembangan and Shah Alam will boost its GDV in the Klang Valley to 50%, with another 30% from Johor and 20% from Perak.

http://www.thestar.com.my/Business/Business-News/2013/07/11/Maybank-Research-says-Hua-Yang-is-hot.aspx

Linear income versus Passive income

It is important to realise that not all income is created equal.  Some streams are linear and some are passive.

Linear income is what you get from a job   You work for an hour and get paid once for that hour's work.

Passive income is when you work once and you continue to get paid from work that you're no longer doing.

The way to become wealthy is to have a steady flow of passive income which successful investors can attest to.

Initially, they work long hours, save up enough and then invest.

Later, their money starts working for them and gives them investment returns in the form of capital growth and rental returns.

Rather than getting another job, the wealthy people know they need to send their money out to work HARD for them.

A system for making money is something that takes the emotion out of your investment decisions and makes the results more reproducible.

Over the years, successful investors do things in a certain way that help them become rich while others continue to do things differently and in general, tend to struggle.

To get rich and how to make sure you do, do consider these six simple reasons:

1. Don't wait too long to start investing.
2. Don't let fear stops you from getting what you want, especially in terms of money.
3. Don't wait until you know enough or too much from getting started. 
4. Don't forget to focus on both linear and passive incomes.
5. Don't neglect developing and using systems for making money.
6. Don't be impatient. 

Adopted from an article:

Be a successful investor 

Published in Star Newspaper 9.7.2013

How to tell if you're rich? Who is “rich” and what is “fair"?

One of the biggest points of contention in the last election was whether the rich pay their fair share of taxes. Polls show the majority of voters don’t believe they do.

Of course, this begs the questions: Who is “rich” and what is “fair"?
 

Answers are largely a matter of opinion. But here is a fact: IRS figures show that the top 10% of income earners make 43% of all the income and pay 70% of all the taxes. Is that fair? If not, how much should they pay: 75% … 90% … all of it? And how about the now widely recognized fact — thanks to Mitt Romney’s secret videographer — that 47% of Americans don’t pay any income taxes. Is that fair? Opinions will vary.
 

According to the IRS, the top 2% of income earners — the ones who just had their marginal tax rate raised 13% to 39.6% — already pay approximately half of all income taxes. President Barack Obama says it’s about time these folks “chipped in.” What a kidder.
 

And who is “rich"? For today’s discussion, I’ll leave aside the truism that you are rich if you enjoy good health, a loving family, close friends and varied interests. Politicians (and most voters, apparently) seem to believe that a person’s wealth can be determined by his or her income. I would argue that you determine real wealth by looking at a balance sheet not an income statement. But why not look at both?
 

According to the Tax Policy Center, if your annual household income is $107,628, you are in the top 20% of income earners. If your income exceeds $148,687, you are in the top 10%. You are in the top 5% if it is $208,810. And if your household income is $521,411, congratulations. You are in the top 1% … and perhaps demonized by those who view hard work and risk-taking as a matter of good genes and good fortune.
 

However, net worth is a far better measure of wealth, in my view. According to the Federal Reserve Survey of Consumer Finances, a net worth of $415,700 puts you in the top 20% of American households. You are in the top 10% if your net worth is $952,200. (This jives with the findings of Dr. Thomas J. Stanley — author of The Millionaire Next Door — that one in eight American households has a net worth of $1 million or more.) If your nest egg totals $1,863,800, you are in the top 5%. And — trumpets please – if you have a household net worth of $6,816,200, you are again in the top 1% … and possibly frowned upon by redistributionists who resent folks who live beneath their means, save regularly and handle their financial affairs prudently.
 

How do you get rich if you aren’t currently? The basic formula is pretty simple: Maximize your income (by upgrading your education or job skills). Minimize your outgo (by living beneath your means). Religiously save the difference. (Easier said than done.) And follow proven investment principles. (Which we write about here every week.)
 

Most millionaires — folks with liquid assets of one million dollars or more – are not big spenders. Quite the opposite, in fact.
 

According to extensive surveys by Stanley, the most productive accumulators of wealth spend far less than they can afford on homes, cars, clothing, vacations, food, beverages and entertainment.
 

On the other hand, the wanna-be’s (people with higher-than-average incomes but not much net worth), are merely “aspirational.” They buy expensive clothes, top-shelf wines and liquors, luxury cars, powerboats, all kinds of bling and, often, more house than they can comfortably afford. Their problem, in essence, is that they’re trying to look rich. This prevents them from ever becoming rich.
 

It surprises many, but the vast majority of millionaires in the United States:

• Live in a house that costs less than $400,000.

• Are more likely to wear a Timex than a Rolex.
• Generally pay $15 or less for a bottle of wine.

• Have never paid more than $400 for a suit.
• Are more likely to drive a Nissan than a BMW.

• Spend very little on prestige brands and luxury items.

Yes, they’re frugal. But they’re also happy, not to mention financially free. They are not dependent on their families, their employers or the federal government. What a feeling.
 

Some can’t abide by this important lesson but the bottom line is clear: If you want to be rich, you have to stop acting rich… and start living like a real millionaire.

Alexander Green is the chief investment strategist at InvestmentU.com. See more articles by Alexander here.

- See more at: http://www.hcplive.com/physicians-money-digest/personal-finance/How-to-Tell-if-Youre-Rich-IU#sthash.edqDi0sq.dpuf

The income and wealth gap in this country and many others continues to expand. Take the necessary steps to make sure that you and your family are on the right side of the chasm.

Three Steps Toward Financial Freedom

Marc Lichtenfeld | Thursday, April 04, 2013

 
I was at a school function and had every reason to be depressed…
 
With kids in elementary and middle school, I was getting an earful from a teacher about everything that’s wrong with education in the school district.
 
Emphasis on standardized tests, teachers whose work and skill are given no respect and, most shocking of all, the administration insisting to this particular teacher that a nine out of 50 on his history exam is a passing grade (despite his vigorous protests). In other words, a kid who filled out A for every answer of this multiple choice test would pass the course.
 
This is going on all over the country. We’re failing our kids, graduating young men and women who are not prepared for the real world.
 
But just as I was feeling pretty awful about the situation, I turned and walked into the exhibit hall. There, several hundred high school kids were up against each other in a robotics competition. These kids were smart. They were motivated. They were boys, girls, black, white, Hispanic and every other race and ethnicity you can think of. They were competing hard against one another, but having a party with each other at the same time.
 
Massachusetts Institute of Technology (MIT) was in the hall recruiting. So were Washington University in St. Louis and the U.S. Army. The army wasn’t there looking for infantry. It was hoping to nab some of the country’s brightest young engineers and technologists.
 
Seeing so many intelligent ambitious kids made me optimistic about the future — but it also got me thinking about differences in “the haves” and “the have-nots.”
 
In terms of education, these kids were clearly the haves. Not because they came from great schools — some of them didn’t. They were the haves because either a parent or teacher pushed them to grab the opportunities in front of them, or because they were self-motivated. Likely, a combination of the two.
 
Financially, in the United States, the gap between the haves and have-nots has widened significantly over the years.
 
According to the Spectrem Group, there are 8.99 million households in the United States worth at least $1 million, up 300,000 in 2012 due mostly to the stock market.
 
Unfortunately, Americans receiving food stamp assistance is at record levels at 47.8 million.
 
Former Florida Governor Jeb Bush recently told MSNBC, “We’re no longer socially mobile as a country,” and “You have people that are born poor and there’s a higher and higher probability that they’re going to stay poor. And you have people that are born rich and there’s a greater probability that they’ll stay rich.”
 
Life isn’t always fair. Sometimes you don’t get that deserved promotion, or an injury or accident hurts your ability to generate income. But if you’re motivated, there are still ways you can ensure your family is among the haves. And you don’t need a ton of money to start.
 
Here are three simple steps to get you underway:

1. Live below your means and start early
Pretty obvious advice here, but by God it works.

And don’t tell me it’s impossible. When I graduated college, I lived in Manhattan while making $18,000 a year and saved money from every paycheck. While friends of mine were living in high-rises with doormen, I shared a room with a friend in a nasty walk-up apartment. I contributed to a 401(k), had enough for pizza and beer (admittedly, it was bad, cheap beer) and put a few bucks away that I invested and turned into a few more bucks.

Saving and investing money for the past few decades has created a portfolio larger than anything I could have imagined when I was fighting off roaches the size of dachshunds in my New York apartment.

2. Make the right investments
My favorite is dividend stocks. But not just stocks with high yields. I’m more concerned with dividend growth. Here’s a perfect example of why:

This week, Barron’s reported that from 2007 to 2012, the dividends of the S&P 500 grew 14% while inflation totaled 12%. In other words, today, you need $1.12 to buy $1′s worth of 2007 goods. If you received $1′s worth of dividends from S&P 500 stocks in 2007, today you’d get $1.14, so you’re ahead of the game.

Owning Perpetual Dividend Raisers (companies that raise their dividends every year) is the best way, in my opinion, to increase your buying power over time. Whether you take the income today or are saving for decades from now, these stocks ensure you’ll have more money in your pocket that you need to keep up with inflation.

3. Learn as much as you can
There are so many good books and resources out there for investors.

If you’re new to the markets, my favorite book is Understanding Wall Street by Jeffrey Little. This book goes into the basics of what a stock, bond, option and ETF are. If you’re new to investing, I can’t recommend it highly enough.

The Little Book that Beats the Market by Joel Greenblatt is a terrific resource on value investing.

If you like the dividend growth method I mentioned above, Get Rich With Dividends is for you. Written by an author with one of the most insightful investing minds of the past 100 years (OK, it’s me), Get Rich With Dividends shows you exactly how you can generate significant income or wealth by investing in these conservative dividend-paying stocks.

Even if you’re behind, it’s not too late to ensure that in the future you’re a “have” instead of a “have-not.” The income and wealth gap in this country and many others continues to expand. Take the necessary steps to make sure that you and your family are on the right side of the chasm.

Marc Lichtenfeld is a senior analyst at Investment U.

- See more at: http://www.hcplive.com/physicians-money-digest/personal-finance/three-steps-toward-financial-freedom-iu/P-2#sthash.PKnShqWS.dpuf

How to be Frugal

Laura Joszt | Monday, May 20, 2013

Warren Buffett may be one of the richest people in the world, but he still lives an incredibly frugal life. And Oscar-winner Jennifer Lawrence may be a young Hollywood “it girl,” but she is also careful with her recent millions and surprisingly prudent with her money.

If even the people who have money to spend are thrifty, then why shouldn’t the rest of us be as well? In fact, it is by being so frugal that some people actually become rich. By maximizing your income and living below your means, you’re enabling yourself to live a fuller, financially independent life.

That doesn’t mean you can’t splurge every once in a while, but the great thing is that living frugally means a splurge won’t break the bank and won’t put you into debt.

So to help you start on the very difficult path of being economical, H&R Block turned to some experts in the area: budgeting and personal finance bloggers.

Large purchase
Stephanie Halligan (The Empowered Dollar) and David Ning (Money Ning) took two different approaches to saving for something like a vacation. Halligan approached saving for the large purchase by curbing impulses, while Ning took a more structured financial approach.

Halligan suggests creating very visible and daily reminders of what exactly you are saving up for to help prevent unnecessary purchases. She wrote to H&R Block:

“For example, when I was saving up for a trip to Vietnam, I wrapped a note around my debit card that said, ‘Every $1 you spend today is one less bowl of Vietnamese Noodle Soup tomorrow.’”

Ning recommends charting the progress by tying saving goals to a date of when the money should be saved up. If you know you need $2,000 by September 1 and it’s January 1, you can start by saving $223 a month, putting away the money each first of the month.

As you go along, you can adjust the monthly savings. So if you can sock away $275 on May 1, then you only need to save $203.25 on the first of the next two months. Or if May is a tough month where the dog gets sick or the car is towed and you can only put away $110, then you know that you need to be careful the next four months and save $249.5 if you want to reach your goal.

Income stream
David Weliver from Money Under 30 suggests creating a designated income stream that can help supplement your savings. For instance, you might take on side work for the weekend. Physicians can find a way to do this as well by using their skills to create programs, become speakers, etc.

Of course, you could always increase income by getting rid of some old belongings by selling them on eBay.

Your turn
So pick the method that works best for you and stick with it. If you know you’ve got some extra marketable skills and a little more free time (perhaps you’re working locum tenens?) then Weliver’s path might be for you. For those more structured people, Ning’s might be easier to stick with. But if you know you need to continuous reminder to keep you on track, you’d do well to heed Halligan’s advice.

http://www.hcplive.com/physicians-money-digest/personal-finance/How-to-be-Frugal-LBJ

Berkshire Hathaway's Acquisition Criteria: Telling it like it is.

Berkshire Hathaway's Acquisition Criteria: Telling it like it is

Take a look at the following set of "acquisition criteria," straight from the 2006 Berkshire Hathaway Annual report. Straight, clear, to the point - and never before have we seen anything like this - including the commentary - in a shareholder report.

ACQUISITION CRITERIA

We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:

1. Large purchases (at least $75 million of pre-tax earnings unless the business will fit into one of our existing units).
2. Demonstrated consistent earning power (future projections are of no interest to us, nor are "turnaround" situations).
3. Businesses earning good returns on equity while employing little or no debt.
4. Management in place (we can't supply it).
5. Simple businesses (if there's lots of technology, we won't understand it).
6. An offering price (we don't want to waste our time or that of the seller by talking, even preliminary, about a transaction when price is unknown).

The larger the company, the greater will be our interest. We would like to make an acquisition in the $5-20 billion range. We are not interested, however, in receiving suggestions about purchases we may make in the general stock market.

We will not engage in unfriendly takeovers. We can promise complete confidentiality and a very fast answer - customarily within five minutes - as to whether we're interested. We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give. We don't participate in auctions.

Deterioration on those key fundamentals may lead you to sell, but do you also sell on valuation?

Kinnel: On the sell-side, deterioration on those key fundamentals may lead you to sell, but do you also sell on valuation?

Akre: So, in response to your first observation, deterioration to any one of those three will certainly cause us to re-evaluate it. It won't automatically cause us to sell, but it will certainly cause us to re-evaluate it. Our notion is that if we don't get those three legs right where there develop differently in the future than they have in the past, theoretically our loss is the time value of money that it hasn't always been the case. But the deterioration of one of those legs or more than one of those legs diminishes the value of that compounding and, indeed, is likely to cause us to change our view. That's number one.

Number two, the issue of selling on valuation is way more difficult for us. And what we've said is that from a matter of life experience, if I have a stock that's at $40 and I think it's way too richly valued and I sell it with a goal of buying it back at $25, my life experience is it trades to $25.01 or trades through $25 and back up and it trades 200 shares there.   The next time I look at it, it's $300, and I've missed the opportunity. It's my way of saying that the really good ones are too hard to find.  

If I have one of these great compounders, I'm likely to continue to own it through thick and thin knowing that periodically, it's likely to be undervalued and periodically likely to be overvalued. The things that cause us to sell when one or more of the legs of the stool deteriorates. Occasionally, on a valuation basis, maybe we'll take some money off the table.

Lastly, if we're trying to continue to maintain a very focused portfolio, if we run across things that we think are simply better choices, then we maymake changes based on that. 

Do you understand your retirement money management?

http://www.howtofinancemoney.com/2012/03/how-to-define-wealth.html

Consumer Stocks on my radar screen

Carlsberg
Guinness
Nestle
Dutch Lady
Hup Seng Industries
Padini
Zhulian


Carlsberg

ROE 64.08%
EPS CAGR 5 Yrs 19.5%
DY High 5.2% - Low 3.6%
D/E 0.02
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 1584.78 m
LFY Earnings 191.63 m
Gross Margin 36.26%
Market Cap RM  4353.85 m
Shares (m) 305.75
Per Share price RM  14.24
P/E 22.7
DCA Strong


Guinness

ROE 54.62%
EPS CAGR 5 Yrs 13%
DY High 7.1% - Low 4.1%
D/E 0.53
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues  1623.69 m
LFY Earnings 207.40 m
Gross Margin 33.70%
Market Cap  RM 5437.76 m
Shares (m) 302.10
Per Share price RM 18.00
P/E  26.2
DCA Strong


Nestle

ROE 67.27%
EPS CAGR 5 Yrs 11.6%
DY High 4.0% - Low 3.1%
D/E 0.13
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 4556.42  m
LFY Earnings  505.35 m
Gross Margin 34.09%
Market Cap  RM 14,252.91 m
Shares (m)  234.50
Per Share price RM  60.78
P/E 28.2
DCA Strong


Dutch Lady

ROE 57.08%
EPS CAGR 5 Yrs 21.2%
DY High 6.3% - Low 3.6%
D/E 0.00
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues  882.18 m
LFY Earnings 123.38  m
Gross Margin 58.18%
Market Cap  RM 3101.44 m
Shares (m)  64
Per Share price RM  48.46
P/E 25.1
DCA Strong


Hup Seng Industries

ROE 21.24%
EPS CAGR 5 Yrs 46.9%
DY High 11.0% - Low 7.3%
D/E 0.00
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues 247.82  m
LFY Earnings 32.54  m
Gross Margin 35.47%
Market Cap RM  414.00 m
Shares (m)  120.00
Per Share price RM  3.45
P/E  12.7


Padini

ROE 28.23%
EPS CAGR 5 Yrs 25%
DY High 4.9% - Low 2.9%
D/E 0.15
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues  723.41 m
LFY Earnings  96.00 m
Gross Margin 48.19%
Market Cap RM 1236.87 m
Shares (m) 657.91
Per Share price RM 1.88
P/E 12.9


Zhulian

ROE 25.91%
EPS CAGR 5 Yrs 14.7%
DY High 8.7% - Low 5.4%
D/E 0.00
Revenues Growing last 3 Years
Earnings Growing last 3 Years
LFY Revenues  450.43 m
LFY Earnings 117.09  m
Gross Margin 72.51%
Market Cap RM 1334.00 m
Shares (m) 460.00
Per Share price RM  2.90
P/E 11.4


DCA = durable competitive advantage

Buy-and-Hold is Dead .... Long Live Buy-and-Hold

To be an iconoclast is the quick route to raise one's profile. Devise a novel theory, toss in a few data-mined graphs to support a point and then stand back and watch accolades flow in.   

 In recent years, buy-and-hold has suffered its share of slings and arrows by those with novel theories. Just cobble together the right array of market-timing indicators and any investor can put buy-and-hold to shame, so the detractors sneer. 

As an income investor, I bristle at the impertinence, because timing the market is far, far more difficult than the data-mined graphs lead you to believe. Sure, if you could go back in time, you could time your purchases and sells to perfection.

Unfortunately, the same luxury doesn't exist going forward - never has and never will. 

I'm an income investor. I'm also a buy-and-hold investor. My focus is to buy and then hold aninvestment over time – measured in years, in most cases.  I approach an investment as an investment. And an investment, like a garden, requires time to bear fruit. 

Don't misunderstand. I'm not denigrating market-timing traders; they serve a worthwhile function, not the least of which is as liquidity providers. It's just that trading isn't my bailiwick. I prefer to build wealth over time by investing in cash-generating assets. It's no coincidence, therefore, that theHigh Yield Wealth portfolio is a low-turnover portfolio. 

 Buy-and-hold might be antiquated, but it's hardly inferior. Buy-and-hold instills a number of advantages, especially for income investors. 

Taxes are an obvious advantage. Hold an investment longer than a year and the tax rate on a subsequent sale drops to the capital gains rate of 15% for most investors. Sell within a year and gains are taxed at the higher marginal income tax rate. 

Qualified dividends – those paid by most corporations – are also taxed at the 15% rate for most investors. But there’s a catch: You must hold the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Trade within that period and you'll incur a higher tax liability.  

That said, the potential to compound wealth is the most appealing aspect of buy-and-hold. 

I've written frequently on the wonders of dividend-growth investing. But to maximize the wonders, you have to extend your holding period to years, if not decades. 

 Altria (MO) , the maker of Marlboro cigarettes, is underscores the power of buy-and-hold when combined with dividend growth.

Altria has paid a dividend for decades, and has raised that dividend faithfully and annually for the past 45 years. Rising dividends, in turn, have reliably powered Altria's share price higher. 

 In 2005, Wharton School finance professor Jeremy Siegel wrote an insightful essay titled “Ben Bernanke's Favorite Stock.” That stock was Altria.  Siegel wrote that from 1957 - when the S&P 500 Index was founded - to 2005, Altria produced an average 20% return annually, handily beating the other 499 members of the index.

The record continues to this day, and I can bear witness firsthand. Since Altria was added to theHigh Yield Wealth portfolio in March 2012, it has produced a 43% total return, which runs well ahead of the 20% historically average annual return Siegel refers to. 

 The return generated by Altria in High Yield Wealth isn't predicated on reinvesting dividends, though Siegel's example is.

 By reinvesting Altria's dividends into shares, investors have been able to generate exceptional return over the years, due in large part to those times when Altria came under government attack or new regulation, which invariable lowered the share price. Altria investors were the beneficiary of a continually rising dividend, which could then be used to purchase lower-priced shares, which always recovered.

 Altria's extraordinary long-term wealth creation simply couldn't have been replicated in a trading strategy. An investor had to have bought and then held through thick and thin over many years. 

So don't believe the detractors. Buy-and-hold isn't dead. It's alive and well, and benefiting many investors with the patience and skill to employ it. I know, because I'm one of them.

More From Wyatt Investment Research 

• Stocks Slow, but IPO Market Chugs Along
• Double Your Income on the World's Best Dividend Stocks
• When to sell a dividend stock

Price target - this information is helpful for getting a sense of what others are thinking about the stock's price.

Price target is a share price analysts say the stock will achieve at some future date.

Analysts often attach a period to the price, such as a one-year price target of $ 18.

The information is more suggestive than quantifiable.

It is helpful for getting a sense of what others are thinking about the stock's price.

Alternative to Discounted Cash Flow Method

What do you use if you don't want to or can't use the discounted cash flow (DCF) method of valuing a stock?  

There are other methods for valuing a stock (not valuing the company).  The most popular alternative uses various multiples to compare the price of one stock to a comparable stock.

The price earnings ratio (P/E) is the most popular multiple for these comparisons.

You can use the P/E formula to find the price based on comparable stocks.

For example, three stocks in a particular industry had an average P/E of say 18.5.  If another stock ABC in the same industry had earnings of $2.50 per share, you could calculate a stock price of $46.25 per share (= 2.5 x 18.5).  This is just an approximation, but it should put stock ABC on a comparable basis with the other three stocks in the same industry.



This strategy has several flaws.

1.  The P/E is not always the most reliable of value gauges.
2.  The process depends on the three comparables being priced correctly and there is no guarantee of that.
3.   Its biggest flaw is that the process tells you nothing of the future value of the company or the stock.

If you use this method, and many investors do, you will need to watch the stock more closely and continually measure it against comparables.  However, it does not require you to estimate anything or consider multiple variables, which is why it is so popular.

This method is best used for a quick decision on whether the stock is under-priced or over-priced.
Although you can arrive at a stock price based on the P/E formula, it is not nearly as accurate as the DCF method.



You can also use other key ratios in valuation.

These include the followings:
1.  Price/Book - Value market places on book value.
2.  Price/Sales - Value market places on sales.
3.  Price/Cash Flow - Value market places on cash flow.
4.  Dividend Yield - Shareholder yield from dividends.



So, which method should you use - DCF or multiples?

In the end, you will have to decide which method is for you.

There is no rule against using both.

Whether you calculate your own DCFs or use the estimates from others, reputable websites or analysts estimates, make sure you have the best guess available on the variables the formula needs.

Either way, make a conscious decision to buy a stock based on the valuation method of your choice and not a "feeling" for the stock.

iCAP is well invested in CASH as revealed in its latest quarterly report

Tuesday July 2, 2013 MYT 5:48:46 PM

iCapital.biz earnings jumps to RM47mil

iCapital.biz Bhd’s net profit for its fourth quarter jumped to RM47.12mil from RM1.7mil a year ago due to profit on disposal of securities and higher revenue.

Its revenue increased to RM49mil from RM4.5mil a year ago. Earnings per share were 33.66 sen compared to 1.22 sen a year ago.

For its full year, the group posted a net profit of RM56.8mil from RM15.7mil a year ago. Its full year’s revenue stood at RM65.9mil compared to RM24.8mil a year ago.

“As the company is a closed-end fund, a better indication of its performance would be the movement of its Net Assets Value (NAV). The NAV per share as at May 31, 2013 was RM2.99, compared with NAV per share of RM2.86 as at May 31, 2012,” it said.

http://www.thestar.com.my/Business/Business-News/2013/07/02/icapital.aspx

31.5.2013

Fees
Fund management fees $3.090 million
(31.5.2012:  RM 2.895 million)

Revenue 
Interest  4.163 million
Dividend Income  12.665 million
Gains on Disposal of Securities 49.126 million
Total Revenue  65.954 million

Operating expenses 6.977 million
Profit from operations before tax 58.977 million
Taxation 2.163 million
Profit for the period 56.814 million

NAV
31.5.2013  RM 2.99
31.5.2012  RM 2.86
y-o-y change + 4.5%

Retained Profits
31.5.2013  178.848 million
31.5.2012  122.034 million
y-o-y change 56.814 million

Fair-value adjustment reserve
31.5.2013  100.071 million
31.5.2012  137.725 million
y-o-y change - 37.654 million

Total equity
31.5.2013  418.919 million
31.5.2012  399.759 million
y-o-y change 19.16 million (+ 4.79%)

Short term deposits 
31.5.2013  207.034 million
31.5.2012  133.571 million

Investments
31.5.2013  209.700 million
31.5.2012  262.658 million

Cash level
In the latest quarterly report, the cash level of iCap has risen above RM 200 million or about RM 1.43 per share.


From Annual Report of 2012
As of 12.9.2012, the stocks in its investment portfolio are (no. of shares):
1.   Boustead 7,197,850
2.   F& N 2,114,000
3.   Integrax 4,884,500
4.   MSC  2,902,000
5.   Padini  22,700,000
6.   Parkson  9,180,900
7.   Petdag  2,400,000
8.   PIE 3,407,200
9.   Suria Capital 9,344,400
10.  Tong Herr  3,479,300
11.  Pharmaniaga  125,180

Your Biggest Risk - The Traps of Trading. What are the 2 most dangerous words in investing?

Professional traders use highly sophisticated trading techniques driven by computer programs that analyze huge volumes of data almost instantly.  You are competing with them when you attempt to play the trading game, and you will probably lose.  Professional traders have a name for amateurs who believe they can win:  "dumb money."  With all of their technology and huge bankrolls behind them, not even all professional traders are successful for an extended period.

MARKET TIMING may be the two most dangerous words in investing, especially when practiced by beginners.  Market timing is the strategy of attempting to predict future price movements through use of various fundamental and technical analysis tools.  At its best, market timing is a risky business for professional investors.

The real danger exists for beginners who are tempted by what looks like easy money.  All you have to do is buy a stock today and sell it tomorrow for a "gut feeling it was going up."  Yes, this happens every once in a while, but somebody has to win the lottery, too (here's a hint:  it won't be you or me).

Having Reasonable Expectations in Your Investing

Unreasonable expectations of how your portfolio should perform can lead to poor decisions, such as taking more risk to make up the difference  between your expectations and reality.

What is an unreasonable expectation?

1.  Expecting to gain 25 percent per year when the broader market is returning 8% is unreasonable.

2.  Expecting your portfolio to not fall when the market is down 35% is unreasonable.

3.  When investors fall behind in reaching financial goals, the temptation is to become more aggressive, which leads to unreasonable expectations.  If you choose more risky stocks (young technology companies, for example), you may have some winners that will help make up lost ground, but the odds are higher that you will simply fall farther behind.  The stock market and the economy don't care about your goals or investment choices.  They move due to a variety of actors and will go up or down with no regard to your plans.


What is a reasonable expectation of portfolio performance?

It depends.

1.  If your stocks are more heavily weighted toward growth, it is not unreasonable to expect to do better than an index of the broader market that is more heavily weighted toward growth.

2.  When the market is rising, your portfolio should also rise (and perhaps a little faster) and when the market falls, your portfolio should not drop as far or as fast.  That's the best you can hope for and if you hit, it, you are ahead of the game.

The relationship of risk and potential reward in stock investing is often misunderstood in shaping an investment strategy.

There is no investing in stocks without risk and there is no return without risk.

If you are adverse to the idea of taking any amount of risk, then stocks are not for you.

It will be more difficult (but not impossible) for you to reach your financial goals without investing in stocks.


Understanding Risk

Risk is the potential for your investment to lose money, for a variety of reasons - meaning your stock's price will fall below what you paid for it.

No one wants to lose money on an investment, but there's a good chance you will if you invest in stocks.

The rule of thumb is "the higher the risk, the higher the potential return, and the less likely it will achieve the higher return."

Buying a stock that is risky doesn't mean you will lose money and it doesn't mean it will achieve a 25% gain in one year. However, both outcomes are possible.

How do you know what the risk is and how do you determine what the potential reward (stock price gain) should be?


Measuring risk against reward

When you evaluate stocks as potential investment candidates, you should come up with an idea of what the risks are and how much of a potential price gain would make the risks acceptable.

Calculating risk and potential reward is as much an art as it is a science.

You need to understand the principle of risk and reward to make an educated investment as opposed to a guess.

The most common type of risk is the danger your investment will lose money.

You can make investments that guarantee you won't lose money, but you will give up most of the opportunity to earn a return in exchange.

When you calculate the effects of inflation and the taxes you pay on the earnings, your investment may return very little in real growth.


Will I achieve my financial goals?

If you can't accept much risk in your investments, then you will earn a lower return.

To compensate for the lower anticipated return, you must increase the amount invested and the length of time it is invested.

Many investors find that a modest amount of risk in their portfolio is an acceptable way to increase the potential of achieving their financial goals.

By diversifying their portfolio with investments of various degrees of risk, they hope to take advantage of a rising market and protect themselves from dramatic losses in a down market.

The elements that determine whether you can achieve your investment goals are the following:
1. Amount invested
2. Length of time invested.
3. Rate of return or growth
4. Fewer fees, taxes, and inflation.


Minimize risk - Maximize reward

The MOST SUCCESSFUL INVESTMENT is one that gives you the most return for the least amount of risk.

Every investor needs to find his or her comfort level with risk and construct an investment strategy around that level.

A portfolio that carries a significant degree of risk may have the potential for outstanding returns, but it also may fail dramatically.

Your comfort level with risk should pass the "good night's sleep" test, which means you should not worry about the amount of risk in your portfolio so much as to lose sleep over it.

There is no "right or wrong" amount of risk - it is a very personal decision for each investor.

However, young investors can afford higher risk than older investors can because young investors have more time to recover if disaster strikes.

If you are 5 years away from retirement, you don't want to be taking extraordinary risks with your nest-egg, because you will have little time left to recover from a significant loss.

Of course, a too-conservative approach may mean you don't achieve your financial goals.