Tee denies allegations
With the news from official and unofficial sources, an intelligent reader can quickly follow the stories better than in the past when news were controlled.
Thursday 29 July 2010
It is great to hear both sides of the stories.
With the news from official and unofficial sources, an intelligent reader can quickly follow the stories better than in the past when news were controlled.
Dow Theory - Market Phases
Dow Theory - Market Phases
Primary movements have three phases. Look out for these general conditions in the market:
Bull Markets
Bull markets commence with reviving confidence as business conditions improve.
Prices rise as the market responds to improved earnings
Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results.
Bear Markets
Bear markets start with abandonment of the hopes and expectations that sustained inflated prices.
Prices decline in response to disappointing earnings.
Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value.
Dividend Yield
Dow believed that stocks yielding below 3.5 percent were over-priced "except there be some special reason." Richard Russell analyzed the dividend yield on the Dow from 1929 to 1959 and found that the market tended to reverse when yields had fallen to between 3 and 4 percent.
Since the 1960s the dividend yield on the Dow and S&P 500 has declined to around 2 percent. We should be careful not to leap to the conclusion that the market is way over-valued. Examine the S&P 500 chart below and you will observe that the Dividend Payout Ratio declined over the same period, from 60 to 30 percent.
Companies are retaining a higher percentage of earnings, preferring to return capital to stockholders by way of share buy-backs rather than by way of dividends. This favors investors who prefer the enhanced earnings growth offered by share buy-backs, without the tax implications associated with dividends.
We should therefore switch our focus to earnings yield, rather than dividend yield, in order to avoid any distortion. An earnings yield of below 5.0 percent would offer a similar over-bought signal to a dividend yield of less than 3.5 percent (0.035/0.7=0.05). This translates to a price-earnings (PE) ratio above 20. I use a PE ratio above 20 to signal that a bull market is entering stage 3.
Perfect Your Market Timing
Learn how to manage your market risk.
Volume Confirmation
Increased volume on declines and dull activity on rallies provide additional evidence of an overbought market. Conversely, lack of activity on declines and increased volume during rallies indicate an oversold market. See Volume Patterns for further detail.
http://www.incrediblecharts.com/technical/dow_theory_market_phases.php
Primary movements have three phases. Look out for these general conditions in the market:
Bull Markets
Bull markets commence with reviving confidence as business conditions improve.
Prices rise as the market responds to improved earnings
Rampant speculation dominates the market and price advances are based on hopes and expectations rather than actual results.
Bear Markets
Bear markets start with abandonment of the hopes and expectations that sustained inflated prices.
Prices decline in response to disappointing earnings.
Distress selling follows as speculators attempt to close out their positions and securities are sold without regard to their true value.
Dividend Yield
Dow believed that stocks yielding below 3.5 percent were over-priced "except there be some special reason." Richard Russell analyzed the dividend yield on the Dow from 1929 to 1959 and found that the market tended to reverse when yields had fallen to between 3 and 4 percent.
Since the 1960s the dividend yield on the Dow and S&P 500 has declined to around 2 percent. We should be careful not to leap to the conclusion that the market is way over-valued. Examine the S&P 500 chart below and you will observe that the Dividend Payout Ratio declined over the same period, from 60 to 30 percent.
Companies are retaining a higher percentage of earnings, preferring to return capital to stockholders by way of share buy-backs rather than by way of dividends. This favors investors who prefer the enhanced earnings growth offered by share buy-backs, without the tax implications associated with dividends.
We should therefore switch our focus to earnings yield, rather than dividend yield, in order to avoid any distortion. An earnings yield of below 5.0 percent would offer a similar over-bought signal to a dividend yield of less than 3.5 percent (0.035/0.7=0.05). This translates to a price-earnings (PE) ratio above 20. I use a PE ratio above 20 to signal that a bull market is entering stage 3.
Perfect Your Market Timing
Learn how to manage your market risk.
Volume Confirmation
Increased volume on declines and dull activity on rallies provide additional evidence of an overbought market. Conversely, lack of activity on declines and increased volume during rallies indicate an oversold market. See Volume Patterns for further detail.
http://www.incrediblecharts.com/technical/dow_theory_market_phases.php
The Dividend Play: High Growth vs. High Yield
The Dividend Play for a Lifetime
Netflix Hits $100!
David Gardner called Netflix in 2004 at $15.42. He’s up 546% as of April 23rd. See what David’s recommending that you buy NEXT.
Last week I highlighted Yum! Brands (NYSE: YUM) as the best China play that wasn't Chinese. As the company behind such brands as KFC and Taco Bell, Yum! offers a compelling prospect for gain. McDonald's (NYSE: MCD)also allows dividend investors to reap payouts for a lifetime, and has a few less-obvious catalysts up its sleeve to unlock value.
High growth vs. high yield
Over the years, McDonald's operational performance has been exceptional, leading to its ability to pay and increase dividends for decades. The restaurant titan currently yields 3.1%, or $2.20 per share. That dividend has more than tripled over the past five years. Nice if you owned the stock since then, I hear you grumble. As a dividend investor, you need to consider how your company might increase its payouts in the future. Knowing the dividend growth rate is as important as knowing the dividend.
Over the years, McDonald's operational performance has been exceptional, leading to its ability to pay and increase dividends for decades. The restaurant titan currently yields 3.1%, or $2.20 per share. That dividend has more than tripled over the past five years. Nice if you owned the stock since then, I hear you grumble. As a dividend investor, you need to consider how your company might increase its payouts in the future. Knowing the dividend growth rate is as important as knowing the dividend.
Consider the companies in the following table:
Company | Dividend Yield | 5-Year Dividend Growth Rate |
|---|---|---|
McDonald's | 3.1% | 31.3% |
Procter & Gamble (NYSE: PG) | 3.1% | 11.9% |
Frontier Communications (NYSE: FTR) | 9.7% | 0.0% |
Annaly Capital (NYSE: NLY) | 15.2% | 6.9% |
Source: Capital IQ.
While McDonald's and Procter & Gamble offer lower yields, they also have the ability to raise their dividends because of their strong consumer franchises. In fact, it's difficult to think of better consumer companies.
On the other hand, both Frontier and Annaly are less able to sustainably deliver dividend growth. While their yields are both sizable, the prospects for future gains are limited. Frontier operates in the declining fixed-line telecom space, and just cut its payout as it integrates some rural operations recently acquired from Verizon.
Meanwhile, Annaly has been able to increase its yield because net interest margin has increased as interest rates dredged the bottom. While Annaly is a nice play in disinflationary times, interest rates won't remain low forever, so there's likely to be a hiccup in its dividend at some point. Those criticisms, though, don't mean either company isn't worth owning -- I own both -- but rather a reminder that you need to know the sustainability of your dividends. Blending high payouts with high dividend growers could make a lot of sense. (I also own Procter & Gamble.)
McDonald's occupies something of a middle ground, and its recent massive increase in its payout is just the beginning. There are good signs that the company has plenty more in store.
Two hidden dividend sources
McDonald's has indicated that for the future it intends to pay out all its free cash flow. Now, some of that cash will go to repurchase shares. In September 2009, McDonald's authorized a $10 billion repurchase plan, and the company has wasted no time in snapping up shares. It bought back about $1 billion in shares in the recent quarter, and nearly $480 million the quarter before that.
McDonald's has indicated that for the future it intends to pay out all its free cash flow. Now, some of that cash will go to repurchase shares. In September 2009, McDonald's authorized a $10 billion repurchase plan, and the company has wasted no time in snapping up shares. It bought back about $1 billion in shares in the recent quarter, and nearly $480 million the quarter before that.
But the rest of that cash looks earmarked for dividend increases, which could be very significant.
McDonald's also has at least two other potential opportunities to unlock cash. The company has been undergoing significant refranchising, selling off its company-operated stores to franchisors, and it now operates just 19% of its locations. That's great news, because franchise fees allow McDonald's to realize a better-than-80% margin on franchised stores. In contrast, its company-operated stores have less than a 20% operating margin. By refranchising more stores, McDonald's has been increasing its margins and freeing capital tied up in its stores, even though refranchising makes revenue growth look sluggish.
OK, McDonald's is a mature franchise, even if it does have a few growth areas left, such as China. So McDonald's can't post the type of stellar top-line numbers that quickly growingChipotle (NYSE: CMG) and Buffalo Wild Wings (Nasdaq: BWLD) are able to. Those companies can take advantage of store build-out and increasing efficiency to grow margins, which is why McDonald's spun off Chipotle more than four years ago so that the market would appreciate this distinction. Still, according to perhaps the most honest gauge of retail -- same-store sales -- McDonald's is truly holding its own.
The second hidden store of value is in McDonald's real estate holdings. Even as the company sells off franchises, it maintains the rights to most of its land and buildings. Some of that real estate is in prime locations and has been sitting on the company's books at cost for decades.
The mechanism that Mickey D's might use to unlock that value is unclear, but the value is certainly there. And given how CEO Jim Skinner is pulling out all the stops to make the company a more efficient user of capital, it won't be surprising if he gets that value back to shareholders somehow. I don't factor that into my valuation below, but it offers some potential upside nonetheless.
An apple pie to go
A quick dividend discount valuation suggests that McDonald's may be undervalued. Assuming annual dividend growth of 10% in years 1-5, 7% in years 6-10, and a 2% terminal increase, McDonald's shares should be valued at $82. OK, so you don't think McDonald's dividend can grow at 2% for that long? The current price of $70 implies the same growth rates as above, except no dividend increase ever again after year 10. Given the company's willingness to return all its free cash flow, I'm willing to bet that the company can do much better than no dividend growth after year 10. Are you?
A quick dividend discount valuation suggests that McDonald's may be undervalued. Assuming annual dividend growth of 10% in years 1-5, 7% in years 6-10, and a 2% terminal increase, McDonald's shares should be valued at $82. OK, so you don't think McDonald's dividend can grow at 2% for that long? The current price of $70 implies the same growth rates as above, except no dividend increase ever again after year 10. Given the company's willingness to return all its free cash flow, I'm willing to bet that the company can do much better than no dividend growth after year 10. Are you?
Top 10 tricks used by Agents for misselling financial products
http://www.jagoinvestor.com/2010/01/top-10-tricks-used-by-agents-for-misselling-financial-products-and-how-to-deal-with-it.html
A discussion on Dividend
| Dividend discussion, Dec. 6, 2002 |
GEOFF COLVIN: Today’s news from Washingtonhas got investors focusing on dividends like they haven’t in a very long time. To get us up to speed – fast – we’ve got a couple of experts on the subject. James Bianco is president of Bianco Research in Chicago. He’s done some fascinating research on when dividends are and are not good for investors. Gail Dudack is chief investment strategist at Sungard Institutional Brokerage in New York City, and she’s been arguing for months that dividend-paying stocks are the place to be. And so far this year she has been very right. Jim and Gail, thanks so much for being with us.
GAIL DUDACK: Great to be here.
COLVIN: Gail, forgetting about whether there’s a change in the tax on dividends, you’ve been arguing for a long time that stocks that pay dividends are the place to invest. How come?
DUDACK: There’s a lot of reasons, but there’s one simple one for the current environment, which is we’re going to be in a slower growth environment, in terms of GDP growth, because of all the debt load. And if that’s true, then earnings will be harder to come by, and if that’s true, they’ll probably grow maybe 5 to 7 percent. If you can get a 3 percent dividend yield in your portfolio, you’re halfway there. You’re likely to outperform.COLVIN: But you know the argument against dividends, which is that if the companies just kept the money, reinvested it, they could make the stock price go up more, and investors wouldn’t be taxed when they get the dividends. You don’t buy it?
DUDACK: I don’t buy that, because if you’re in a slow-growth environment, there are few places you can get that required rate of return. So companies are buying back their own shares. However, that’s been kind of the spin of the ‘90s, because what did all those share buy backs bring investors in the last few years? Very little. Wouldn’t they have rather had the check in the mail than those stock repurchases? I think so.
COLVIN: Especially over the past 2 ½ or 3 years, they would for sure. Jim, you’ve done some looking into when dividend-paying stocks have been a good investment and when they haven’t. And what did you find?
JAMES BIANCO: What we found is that dividend-paying stocks is an investment theme that seems to work well with the direction of the market.
COLVIN: Meaning?
BIANCO: Meaning that when the stock market goes up, non-dividend-paying stocks do better; when the stock market goes down, dividend-paying stocks do better. So one of the over-arching themes in whether or not you want to invest in dividends is your belief in which way the market’s going to go. If it’s going to go down, you want to invest in dividend stocks; if it’s going to go up, you don’t want to invest in dividend stocks.COLVIN: And what do you believe?
BIANCO: I think that after 2 ½ years, the market has found some kind of an important low in October. I think it’s going to rally for the next several months, maybe a year. Maybe it’s not going to make a new high. I doubt it’s even going to make halfway towards erasing the losses it had, maybe get to S&P 1200. And if that’s true and the market does do better for the next several months, I think that non-dividend-paying stocks are going to lead that charge.
COLVIN: Okay. Interesting, because it’s not quite the same as what Gail has been saying. Let’s take a step back and look at the longer term, the bigger picture. Dividends have really been going out of fashion for the past 20 years, right?
DUDACK: That’s true.
COLVIN: And I think we have some information on this showing that the number of companies paying dividends has decreased from almost all of them in 1980, 93.8%, paying a pretty fat yield at that time, 5.9, till today only 70% are paying dividends, and the yield is tiny, 1.6%
DUDACK: Historic low.
COLVIN: Historic low. Is that an opportunity?
DUDACK: It’s an opportunity for companies to start picking up their dividends and for investors to start looking for some. I think one of the most important points here is that investors understand that stocks are the best performing asset class, but they don’t understand why. It’s because they have capital gains and dividends. And so the aftermath of the ‘90s shows that stocks don’t always perform. In fact, in the bear market the high-yielding stocks are the best performers.
COLVIN: Well, and in fact we can see that in a graphic we have also which says that – I think this is year-to-date – so far companies that didn’t pay dividends declined much further than companies that did pay dividends. And, Jim, that’s consistent with your observation over a longer period of time.
BIANCO: That is true. And if you actually were to break down this year’s activity between dividend and non-dividend-paying stocks, you’d find that dividend-paying stocks outperformed non-dividend-paying stocks until about August of this year, and then they started to kind of perform in line. And since the October low, they’ve been really outperforming. So the non-dividend–paying stocks have been leading the charge for the last two months.
COLVIN: Well, now this really then gets to a bigger question of what you think the big picture of the market’s future is. Jim, you’ve told us. Gail, you were prescient on this fact a few years ago when you said, you turned bearish. You took heat for it. You were right. What do you think now?
DUDACK: Well, I think we’re in the final stages of the bear. The bull, the transition from a bear to a bull does not happen like that. It’s a transition. So I’ve been saying all year that 2002 is the transition from bear to bull. I now think the transition is going to be pushed out into 2003. The reason being earnings were a huge disappointment. And until the momentum improves, we’re still in this process. I think we may retest these lows, and that’s a contrarian view right now.COLVIN: Yeah, it is indeed. And longer term, Jim, are you optimistic or pessimistic? You’ve spoken only so far about the next year or so.
BIANCO: Yeah, longer term, if you can look out three, four, five years, I’m not that optimistic. I do think that after, like I said, 2 ½ years of going down, we’ve got a period where the market could rally. I believe the rally started in October. But after we go up maybe 20 percent or so over the next year or year and a half, if that pans out, I think the market’s then ready to start back down again and may test the lows.
Is the big bear market that started in 2000 over? No. We’re ready for maybe a cyclical bull market or a cyclical correction that could last many months where the market’s going to rally, and (after) that is where I meant going (back) down again.
COLVIN: Gotcha. Gail, let’s think about finding stocks that pay dividends. There’s still an awful lot of them out there and you want to choose only particular ones. How do you choose them?
DUDACK: Well, I think it’s important to kind of look, to use some filters, to look for dividends that are greater than inflation, because right then you’re going to have, and inflation’s pretty low, let’s say 2 percent. And then to look for stocks that have pay-out ratios, they’re not paying out more than 70 percent of their earnings. And then you want to look for companies that still have improving profit margins. So you’re looking for good companies with above average dividends, the dividend in line with or above the inflation rate.
COLVIN: And when you run these screens, what kind of companies do you end up with?
DUDACK: Well, when I run the screens, at the top, the high-paying dividends are always the ones that you really have to check out very carefully. You get a pretty low number from the S&P really of companies. And then I look for other things that I like. I like to see companies that have increased their dividend every quarter or every year for the last 10 years. That shows to me that they have a very good business plan.COLVIN: Like who?
DUDACK: Well, there are companies that have done that like Exxon Mobil has done that. They’ve increased their dividend more than the rate of inflation every year. Johnson & Johnson has done that. Kellogg has done that. (My comment: Interestingly, these are in Warren Buffett's portfolio.)
COLVIN: Interesting. Now you mentioned a minute ago those that have really high yields, and those may be more dangerous than they are attractive. What are some of those? I think we have some of them on a graphic also.
DUDACK: I think you have some on a graphic. The one thing I would say is that when you start to get very high dividend yields, it’s probably because the stock price has collapsed because of some event which needs to be checked into. And so you have to be very careful. And you also want to – this is where the screen is important – make sure that their dividend is not more than their earnings. So take a look at that payout ratio.
COLVIN: Interesting. We only have a few seconds left, but I wanted to get one other view, Jim, because I know you have a thought about bonds. We hear a lot of talk. What do you think investors should be doing?
BIANCO: Bonds are at this point in 2002 the opposite of the stock market. They bottomed in yield the same day the stock market bottomed. They should be the opposite of your view. I think the stock market’s going to rally, that means that yields are probably going to head higher.
Bonds should be avoided. If you have the view that the stock market’s going to go down, bonds will probably do very well. So they’re kind of an anti-stock is really what they are, and they should be viewed as that.
COLVIN: Jim and Gail, thanks so much for being with us.
Wednesday 28 July 2010
Stable dividend policy is followed by prudent management.
Stable dividend policy is followed by prudent management, as it enhances prestige and credit standing of the company and the shareholders also prefer such a policy, as it leads to stability in market prices of shares. Stable dividend means that a certain minimum amount of dividend is paid regularly. It may also mean that dividend is paid regularly by the company, but the amount or rate of dividend is not fixed. However, the former meaning is more acceptable. The stable dividend may take the following forms:
(1) Fixed Amount of dividend per share.
(2) Fixed Share of Profit (Constant Pay out Ratio).
(3) Fixed Total Amount of dividend.
(4) Fixed Percentage of market price of shares.
Constant Pay-out Ratio
http://www.listedall.com/2010/02/stable-dividend-policy.html
Intro to REITs Investment
What are REITs?
REITs stand for Real Estate Investment Trusts. They are specialized companies that invest in commercial, industrial, residential and healthcare real estates. Examples on the Singapore Stock Exchange includes CapitaCommerical Trust (Commercial), Cambridge Industrial REIT (industrial), Saizen REIT (residential) and Parkway Life REIT (healthcare). These companies buy and manage properties including shopping malls, offices, hotels, hospitals.
REITs usually pay a generous dividend because they are required by law to distribute most of their earnings to shareholders. In exchange, they receive tax incentives.
Perhaps, we can view REITs as an instrument to buy and own a small portion of a property, while at the same time shared fundings with many other shareholders to employ someone to manage that piece of property. With REITs, we can invest in real estate with no leverage, no property and no need for any stress in finding tenants and collecting rent from them.
REITs investment generally focus on dividend yield. Also, like any stocks on the exchange, investing REITs can also result in capital gain. The same can be said of investing in real properties. However, because REITs are traded on the stock exchange, it's liquidity is much higher than the actual property itself.
So how do we choose what types of REITs to invest in? I'm not an expert in it, but I shall share some basics of what I think.
The factors that are important to me are:
1) Dividend yield with regards to current stock price, as with how we choose most dividend stocks
2) Gearing
3) Growth potential
4) Sector
5) Sponsor/Backer
1) Dividend yield
Basically, I will be happy with any dividend yield from 6~8% considering that I do not need to actively monitor the stock price. Choosing and buying those with dividend yield of >6% will mean that should anything unforseen occurs, a reduction in DPU would perhaps still beat putting the money in the bank anytime. Of course, reduction in DPUs would likely bring about a drop in the share price as well till the dividend yield is back to the 'acceptable' range. This should not matter if we are taking a longer term investment view as the dividends would eventually pay itself off.
2) Gearing
With the recent credit crisis, there are companies who have to stop dividend payouts, do placement, issue rights, etc, in order to remain in business. If the gearing is low, refinancing of debts is usually a problemless affair. However, if the gearing is high, as in Saizen REIT and Rickmers Maritime, the ability to refinance debts at critical juncture is hampered. The ability to remain as a going concern would be cast in doubt, and this would make it even harder for refinancing.
3) Growth Potential
A REIT which is actively, but conservatively, acquiring properties would in the long run benefit the shareholders with increasing NAV and increasing dividend yield.
4) Sector
The different sectors mentioned earlier, commercial, industrial, residential and healthcare are different in nature. Industrial and healthcare related properties are usually more defensive in revenue, hence the dividend yield would be more consistent. For commercial and residential sectors, the rents could vary more as the tenants are much more mobile. Hence, the dividend yield could fluctuate. However, for the risk, the yield is usually higher.
At the moment, for REITs, I have only CapitaCommercial Trust and Starhill Global REIT, both in the commercial sector. I hope to eventually include the other 3 sectors so that there will be some diversification.
5) Sponsor/Backer
A strong sponsor like Temasek Holdings, Capitaland, or YTL Corporation would be key to the success of the REIT in refinancing its loans.
REITs stand for Real Estate Investment Trusts. They are specialized companies that invest in commercial, industrial, residential and healthcare real estates. Examples on the Singapore Stock Exchange includes CapitaCommerical Trust (Commercial), Cambridge Industrial REIT (industrial), Saizen REIT (residential) and Parkway Life REIT (healthcare). These companies buy and manage properties including shopping malls, offices, hotels, hospitals.
REITs usually pay a generous dividend because they are required by law to distribute most of their earnings to shareholders. In exchange, they receive tax incentives.
Perhaps, we can view REITs as an instrument to buy and own a small portion of a property, while at the same time shared fundings with many other shareholders to employ someone to manage that piece of property. With REITs, we can invest in real estate with no leverage, no property and no need for any stress in finding tenants and collecting rent from them.
REITs investment generally focus on dividend yield. Also, like any stocks on the exchange, investing REITs can also result in capital gain. The same can be said of investing in real properties. However, because REITs are traded on the stock exchange, it's liquidity is much higher than the actual property itself.
So how do we choose what types of REITs to invest in? I'm not an expert in it, but I shall share some basics of what I think.
The factors that are important to me are:
1) Dividend yield with regards to current stock price, as with how we choose most dividend stocks
2) Gearing
3) Growth potential
4) Sector
5) Sponsor/Backer
1) Dividend yield
Basically, I will be happy with any dividend yield from 6~8% considering that I do not need to actively monitor the stock price. Choosing and buying those with dividend yield of >6% will mean that should anything unforseen occurs, a reduction in DPU would perhaps still beat putting the money in the bank anytime. Of course, reduction in DPUs would likely bring about a drop in the share price as well till the dividend yield is back to the 'acceptable' range. This should not matter if we are taking a longer term investment view as the dividends would eventually pay itself off.
2) Gearing
With the recent credit crisis, there are companies who have to stop dividend payouts, do placement, issue rights, etc, in order to remain in business. If the gearing is low, refinancing of debts is usually a problemless affair. However, if the gearing is high, as in Saizen REIT and Rickmers Maritime, the ability to refinance debts at critical juncture is hampered. The ability to remain as a going concern would be cast in doubt, and this would make it even harder for refinancing.
3) Growth Potential
A REIT which is actively, but conservatively, acquiring properties would in the long run benefit the shareholders with increasing NAV and increasing dividend yield.
4) Sector
The different sectors mentioned earlier, commercial, industrial, residential and healthcare are different in nature. Industrial and healthcare related properties are usually more defensive in revenue, hence the dividend yield would be more consistent. For commercial and residential sectors, the rents could vary more as the tenants are much more mobile. Hence, the dividend yield could fluctuate. However, for the risk, the yield is usually higher.
At the moment, for REITs, I have only CapitaCommercial Trust and Starhill Global REIT, both in the commercial sector. I hope to eventually include the other 3 sectors so that there will be some diversification.
5) Sponsor/Backer
A strong sponsor like Temasek Holdings, Capitaland, or YTL Corporation would be key to the success of the REIT in refinancing its loans.
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