Thoughts on Dividend Investing

(08-07-2018, 01:01 PM)ianphoon Wrote:

(06-07-2018, 05:46 AM)RJT Wrote: I don't think anyone is reinventing the wheel here. The strategy of "own tangible assets that generate regular, sustainable and rising cashflow over the long-term" is an emphasis on return on capital again, not dividend. Dividend is just a byproduct of management decision on how to allocate their capital. If one buys FCT at a fair price and hold 30-40 years, his return will be similar to the return of the actual business.

To look at FCT return, we just have to look at the growth of equity and debt over the past 10 years:  (Sep 07 - Sep 17)
Equity: 671 mil to 1872 mil
LT Debt: 258 mil to 645 mil
ST Debt: 3 mil to 152 mil

That's a total of 1737 mil capital injected into the business over the past 10 year. At the meantime, earnings has grown by 110 mil, from 79 mil to 193 mil. So the return of the business is around 6.3% (110/1737)

If you look at the share price, it went from $1.37 to $2.2, add in the $0.98 dividend distributed in the last 10 years, you get a CAGR of 8.78%, which is still pretty good.

Like I said, over the long term, the market return is going to trend very close to the business return. If the return align with your financial objective, that's all great, stock market is not about comparing ego, but get to where you want to be.

To just add in the dividend paid out over the years to the price gain is too simplistic a way 
The real returns are actually more
As each yr, more shares are added. And to that more dividends are obtained
Einstein 8th wonder has deeper meaning to what most think

Thanks Ianphoon. As already explained at the core of this topic, a business that can reinvest all of its earnings at a satisfactory return is better than one that needs to constantly pay out a majority chunk of it. Surely, FCT shareholders can reinvest their dividend to achieve a higher compounded return, but I have already stated some 'invisible' risks in the original writing as well i.e spent instead of reinvest. And this doesn't detract the fact that investor return is still bounded by the business return in the long run. 8th wonder's ability to work its magic goes back the return of the business, not dividend or the discipline of an investor on reinvestment.

If one open a fixed deposit account that earns 3%, you can have the interest paid out to you, say every half yearly, think of it like a company that have a 100% dividend payout policy. But you also have the option to get the bank to reinvest those interest rather than pay it out, which in this case is a company that have 0% dividend policy. Yes, in both case, the latter - reinvest all interest - will compound your capital faster than the former, but it doesn't change the fact that at the end of the day, you're still getting a 3% return on both the principal and the interest portion.

(09-07-2018, 07:28 AM)RJT Wrote:

(08-07-2018, 01:01 PM)ianphoon Wrote:

(06-07-2018, 05:46 AM)RJT Wrote: I don't think anyone is reinventing the wheel here. The strategy of "own tangible assets that generate regular, sustainable and rising cashflow over the long-term" is an emphasis on return on capital again, not dividend. Dividend is just a byproduct of management decision on how to allocate their capital. If one buys FCT at a fair price and hold 30-40 years, his return will be similar to the return of the actual business.

To look at FCT return, we just have to look at the growth of equity and debt over the past 10 years:  (Sep 07 - Sep 17)
Equity: 671 mil to 1872 mil
LT Debt: 258 mil to 645 mil
ST Debt: 3 mil to 152 mil

That's a total of 1737 mil capital injected into the business over the past 10 year. At the meantime, earnings has grown by 110 mil, from 79 mil to 193 mil. So the return of the business is around 6.3% (110/1737)

If you look at the share price, it went from $1.37 to $2.2, add in the $0.98 dividend distributed in the last 10 years, you get a CAGR of 8.78%, which is still pretty good.

Like I said, over the long term, the market return is going to trend very close to the business return. If the return align with your financial objective, that's all great, stock market is not about comparing ego, but get to where you want to be.

To just add in the dividend paid out over the years to the price gain is too simplistic a way 
The real returns are actually more
As each yr, more shares are added. And to that more dividends are obtained
Einstein 8th wonder has deeper meaning to what most think

Thanks Ianphoon. As already explained at the core of this topic, a business that can reinvest all of its earnings at a satisfactory return is better than one that needs to constantly pay out a majority chunk of it. Surely, FCT shareholders can reinvest their dividend to achieve a higher compounded return, but I have already stated some 'invisible' risks in the original writing as well i.e spent instead of reinvest. And this doesn't detract the fact that investor return is still bounded by the business return in the long run. 8th wonder's ability to work its magic goes back the return of the business, not dividend or the discipline of an investor on reinvestment.

reinvesting the dividend each time it comes would enable dollar cost averaging. ie when the price is low, more units are being bought and less when the price is high. this is positive point in long term investing.
"ïnvisible'' risk - you mention spent instead of investing. the same applies to a person investing in a company which doesn't pay dividends, ie he might sell his units if he needs the money. and this might happen at the wrong time, when the market is going through a rough patch. 
even if a person who spent his dividend still has his portfolio intact. and even better, if he spent his dividend on another counter. this would serve to reduce the risk to his original investment and create additional income streams.

anyway, whether to investment in a company which pays dividends or to invest in another company which doesn't sometimes can be subjective.

in my personal view, one can read all the analyst report, annual report etc, however, they cannot tell a truth more real than cold hard cash can.

(09-07-2018, 09:16 PM)ianphoon Wrote: ..
reinvesting the dividend each time it comes would enable dollar cost averaging. ie when the price is low, more units are being bought and less when the price is high. this is positive point in long term investing.
"ïnvisible'' risk - you mention spent instead of investing. the same applies to a person investing in a company which doesn't pay dividends, ie he might sell his units if he needs the money. and this might happen at the wrong time, when the market is going through a rough patch. 
even if a person who spent his dividend still has his portfolio intact. and even better, if he spent his dividend on another counter. this would serve to reduce the risk to his original investment and create additional income streams.

anyway, whether to investment in a company which pays dividends or to invest in another company which doesn't sometimes can be subjective.

in my personal view, one can read all the analyst report, annual report etc, however, they cannot tell a truth more real than cold hard cash can.

Reinvesting dividend each time does enable DCA. But not necessarily at a good price. In fact, when the price of the underlying company increase beyond the intrinsic value + margin of safety, it may no longer be a good investment to reinvest the dividend back into the company. This is known as the reinvestment risk.

Regarding using dividend as evidence that the company is not a fraud or is financially strong: Enron, WorldCom and Lehman Brothers also paid a dividend. Many ponzi schemes also promises payout. Hyflux preference shares also paid timely dividends until they can't.

(09-07-2018, 09:16 PM)ianphoon Wrote: reinvesting the dividend each time it comes would enable dollar cost averaging. ie when the price is low, more units are being bought and less when the price is high. this is positive point in long term investing.
"ïnvisible'' risk - you mention spent instead of investing. the same applies to a person investing in a company which doesn't pay dividends, ie he might sell his units if he needs the money. and this might happen at the wrong time, when the market is going through a rough patch. 
even if a person who spent his dividend still has his portfolio intact. and even better, if he spent his dividend on another counter. this would serve to reduce the risk to his original investment and create additional income streams.

anyway, whether to investment in a company which pays dividends or to invest in another company which doesn't sometimes can be subjective.

in my personal view, one can read all the analyst report, annual report etc, however, they cannot tell a truth more real than cold hard cash can.

As Wildreamz mentioned, everytime you reinvest, you run the risk where the market price is higher than the intrinsic value of the business, which you either wait until the price falls back in line with IV (risk of time) or you dollar average, which potentially force you to buy at a price higher than IV (risk of satisfactory return). Of course, you can dollar cost averaging, but how does reinvesting dividend can be a positive point compare to a company that pays no dividend and reinvest everything into the business? Reinvesting dividend face the risk of time, return, and decision making everytime you receive the paycheck, whereas the later you only need to make the decision once, that is the initial buys. Comparatively, won't that be more positive than dollar averaging? 

Yes for sure someone can sell their shares at the wrong time, but logically, who is going to be more discipline? The one that is likely to sell his stock in a crisis or the person that receive dividend and fail to reinvest 100% or decided to 'wait' because there's a market crisis? There's a reason many people setup an automatic savings plan to transfer a fix sum of their salary to their savings account. Because most people are not discipline. It is easier to dabble what's in your bank account than trying to sell a stock.

"even if a person who spent his dividend still has his portfolio intact. and even better, if he spent his dividend on another counter. this would serve to reduce the risk to his original investment and create additional income streams."- Does that mean a person's portfolio isn't intact if he never receive any dividend? Why would spending dividend on another counter be better? Unless the other counter earn a higher ROC. You're right diversification does reduce unsystematic risk. Additional income streams sounds good, but what is the return? I can have a FD account that pays 3% every quarterly, and for every quarter, I'll take that interest payment to open another FD account, so I open 4 new FD accounts each year. Now I've 5 income streams (original + 4 new a/c) after a year, but what's my return? 3%. If you're following me, it still goes back to the return equation. Not the number of paychecks one receive.

I don't get the last sentence "in my personal view, one can read all the analyst report, annual report etc, however, they cannot tell a truth more real than cold hard cash can."

Cash is a liquid asset that can be used to exchange goods, debts or services, but I never know cash can tell you the truth.

Quote "I don't get the last sentence "in my personal view, one can read all the analyst report, annual report etc, however, they cannot tell a truth more real than cold hard cash can."
Cash is a liquid asset that can be used to exchange goods, debts or services, but I never know cash can tell you the truth."


What it means is that you cannot be absolutely sure that the company is really doing well and they are really holding cash they said they have. Until you see the money back in your hands as dividends/capital reduction/etc. Note that financial statements are only expressed by the auditors in their best knowledge. Sometimes their best knowledge is not good enough. How much deviation from the truth is unknown. If an investor relies solely on financial statements as the whole truth should get a reality check.

(10-07-2018, 05:30 AM)Big Toe Wrote: Quote "I don't get the last sentence "in my personal view, one can read all the analyst report, annual report etc, however, they cannot tell a truth more real than cold hard cash can."
Cash is a liquid asset that can be used to exchange goods, debts or services, but I never know cash can tell you the truth."


What it means is that you cannot be absolutely sure that the company is really doing well and they are really holding cash they said they have. Until you see the money back in your hands as dividends/capital reduction/etc. Note that financial statements are only expressed by the auditors in their best knowledge. Sometimes their best knowledge is not good enough. How much deviation from the truth is unknown. If an investor relies solely on financial statements as the whole truth should get a reality check.

Thanks Big Toe. That's true. One must do due diligence when it comes to investing, on whether what the company show in its financial statement is indeed is true. At the same time, the fabric of civilisation is build on trust. Without trust, there will be no startup, no venture capitalism, no banking system, no 30 years treasury bonds etc. Even cold hard cash can only be the 'truth' when there's trust that the paper currency in our hand can be a store of value. 

We are way beyond the discussion of dividend investing. And the return of the business still dictate investor's return in the long-term, not dividend.

We have to look at the dividend paid out over time to make a more accurate judgement. To just use a high dividend and decide to invest is not a wise thing to do.
Those companies which wild dreams pointed out paid continuous dividend
However if you study the trend, most do cut the dividend by 1/2 then omit then go bust. So dividend cut itself is a suggestion that things are not well.
In other words we often have ample time to get out. I have yet to see a company which pays rising dividend year after year and the next year just goes bust.
What rjt says about the business distates investor return is correct.
Just that a group of investors including myself prefer using dividends not only to gauge the company strength but also as a tool to compound our investments

(06-07-2018, 05:46 AM)RJT Wrote: I don't think anyone is reinventing the wheel here. The strategy of "own tangible assets that generate regular, sustainable and rising cashflow over the long-term" is an emphasis on return on capital again, not dividend. Dividend is just a byproduct of management decision on how to allocate their capital. If one buys FCT at a fair price and hold 30-40 years, his return will be similar to the return of the actual business.

To look at FCT return, we just have to look at the growth of equity and debt over the past 10 years:  (Sep 07 - Sep 17)
Equity: 671 mil to 1872 mil
LT Debt: 258 mil to 645 mil
ST Debt: 3 mil to 152 mil

That's a total of 1737 mil capital injected into the business over the past 10 year. At the meantime, earnings has grown by 110 mil, from 79 mil to 193 mil. So the return of the business is around 6.3% (110/1737)

If you look at the share price, it went from $1.37 to $2.2, add in the $0.98 dividend distributed in the last 10 years, you get a CAGR of 8.78%, which is still pretty good.

Like I said, over the long term, the market return is going to trend very close to the business return. If the return align with your financial objective, that's all great, stock market is not about comparing ego, but get to where you want to be.

Same number but I read it in another way.

FY2007 ROE - 11.77%. debt/ equity - 38.90%
FY2017 ROE - 10.31%. debt/ equity - 42.57%
lower profitability despite higher debt level. Property is a leverage business

193- 79 = 114
1872 - 671 = 1301
114/1301 = 8.71%
New capital has lower return. 

Looking at equity without number of unit. ie per unit basis is useless. 

From FCT
FY2007 - DPU - 6.55 cents
FY3017 - DPU - 11.90 cents
CAGR 6.15%

FY2007 - earning - 79M
FY2017 - earning - 193M
CAGR - 9.34%

FY2007 - NAV PU - $1.16
FY2017 - NAV PU - $2.02
CAGR - 5.70%

FY2007 - equity - 671M
FY2017 - equity - 1872M
CAGR  - 10.8%

Lot of leakage.

Actually consistent dividends does show its function to prove that cash is real within the company

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