Singapore Press Holdings (SPH)

[KopiKat]

If you are a recent shareholder of SPH, you must have felt very happy with your stock selection ability as you see its share price staying strong even as the market was volatile and weak. You’d have seen it hitting a high of $3.94 as it approaches xd and gleefully waited for the 17ct dividend. But on 8-Dec, when it xd, it dropped more than 17ct. You must have consoled yourself by blaming it on the weak market as STI had dropped a lot on that day. It continued to slide on 10-Dec and closed at $3.64. Yes, yet another bad market day. But, doubts begin to form in your head… What you’d read in the forum seems to be true… SPH is in a sunset industry… In your mind, you start to make plans to get rid of it asap, cut loss even if necessary…

If you are a long term shareholder of SPH, you’d have been through many similar such cycles as described above, especially so, when the market was weak and volatile. By now, you’d become so used to it and you expect SPH share price to recover again. In the worst case, perhaps one year later, when they’re declaring that “big” close to 20ct dividend. Ya, no worries, you may even try to pick up some more “cheap” ones to add to your collection if it drops even further, giving you a higher yield.

I belong to the latter group of SPH shareholders. I have rode the SPH roller-coaster share price from $2.xx to $5.xx during the past decade or so, including the days when it had a SPH100 category before they did a 5-for-1 split (used to trade above $30 back then at its high before the split and Capital Returns). But, in recent years, instead of a buy-and-hold-forever strategy, I am a bit more active in “managing” my SPH shares to make a couple more % returns. As SPH is in a matured phase of their business cycle, I’m not afraid that if I were to sell my SPH shares, I’d be “caught out” if it were to do an exponential rise in share price. That only happens for companies who’re still growing annually at a healthy pace. As many had kindly pointed out in the forum, their print business is in a sunset industry. At best, they can only maintain their EPS for our DPS by expanding their Property business segment and managing the future decline of the Print business by slowly converting to an online model.

What I do is I usually sell most of my SPH shares a few days before it goes xd and I buy back again at my own leisure after it goes xd. In this recent case, I sold mine at $3.91 about a week before it goes xd and I just bought some back at $3.64/5, two days after xd (I usually have to wait for months to buy back at a good “discount”). In this example, I “save” an extra 9ct, if I use $3.65 as the reference. Yes, SPH may drop even further as market is still weak and volatile. But, don’t forget, I belong to the latter group of SPH shareholder and die-die, I must have some in my long term portfolio for the dividends to pay for my daily expenses.

To summarise, I list the conditions on when the above is applicable (for me),

1. Focus on a stock in a mature phase (flat or slow growth) and one you don't mind holding long term ie. Fundamentally strong companies
2. Market has to be weak and volatile. If market is strong, share price has a high chance to drop less than dividend payout amount after it goes xd.
3. High dividend payout, especially those stocks which pays dividend only once a year or for those with semi-annual payout, then usually during the higher year end payout

The next stock I’ll be trying the above is STEng for their FY11 (Dec) dividend, if market remains weak and volatile. Wish me luck!

Warning : Don’t try the above unless you are experienced enough to blame yourself if anytime goes wrong!

[Musicwhiz]

Hi KopiKat,

I read about your analysis of SPH and your plan of action with great interest.

Though I think it would only work if:-

1) You have a lot of cash buffer to buy and hold through cycles.
2) The share price behaves as you expect after XD, and does not go into an extended decline
3) The business continues to perform well, such that there is no long-term deterioration in the fundamentals which would result in a permanent cut in dividends.
4) There is no removal of the special dividend which SPH has been paying very consistently so far.

Just my 2-cents.

[KopiKat]

MusicWhiz,

I concur with the points you'd raised and it's valid for one who's considering SPH as a stock to invest (or any other stocks).

What I'd posted is meant for those who're ALREADY a buy-and-hold-forever type of shareholders of SPH, like me. Instead of just holding and seeing the roller-coaster cycle of the share price, while waiting for the twice a year dividend payout, I'm actively managing my SPH (and other similar low growth, good dividend yield stocks) to get an extra couple of % returns. Here, I'm trying to get 8-10% returns vs the 6.5% @ $3.64 (last close) Dividend Yield assuming I just buy-and-hold-forever.

One other point which I forgot to mention when I was deciding on whether to sell was that at $3.91, the Yield was 6.14%. It was low enough (I have other alternative stocks at better yield to switch to, if I fail to buy back SPH) to "push" me to sell and activate my chain of actions. If the share price had been lower, giving me a yield of >6.5%, I'd most likely not have done anything.

Of course, I'd have to continue to evaluate SPH to decide whether to continue to hold-forever or to sell if fundamentals deterioate.

[Temperament]

MusicWhiz,

I concur with the points you'd raised and it's valid for one who's considering SPH as a stock to invest (or any other stocks).

What I'd posted is meant for those who're ALREADY a buy-and-hold-forever type of shareholders of SPH, like me. Instead of just holding and seeing the roller-coaster cycle of the share price, while waiting for the twice a year dividend payout, I'm actively managing my SPH (and other similar low growth, good dividend yield stocks) to get an extra couple of % returns. Here, I'm trying to get 8-10% returns vs the 6.5% @ $3.64 (last close) Dividend Yield assuming I just buy-and-hold-forever.

One other point which I forgot to mention when I was deciding on whether to sell was that at $3.91, the Yield was 6.14%. It was low enough (I have other alternative stocks at better yield to switch to, if I fail to buy back SPH) to "push" me to sell and activate my chain of actions. If the share price had been lower, giving me a yield of >6.5%, I'd most likely not have done anything.

Of course, I'd have to continue to evaluate SPH to decide whether to continue to hold-forever or to sell if fundamentals deterioate.

Hi Kopicat
Very interesting "investment tactics".
i just came across some articles on the net on : "YIELD ON COST"
may i pose it here and share your opinion and others.

YIELD ON COST
"Who cares? Effective yield (a.k.a. yield on cost) is completely irrelevant. Yield on cost is a psychological trap that encourages one to remain invested in a stock even though there are better CURRENT yielding opportunities elsewhere. Anyone who focuses more on past performance than future potential should not be writing financial advice.
The yield on cost is misleading.
1. The theoretical price of a stock is the sum of all future dives, so if the div increases, generally so does the share price.
2. Look at the opportunity cost - whatever money I had invested is less relevant than what is it costing me to keep this stock. If I paid $1000 for 100 shares, which are now worth $2000, I have to decide if that stock is a good place to park $2000, which I could invest in other stocks.
3. Look at it this way: say $1000 invested is now giving me a 6% return $60 div (or 3% on the $2000); but I could take the $2000 and buy a stock that is yielding 5%, and get $100 div."

2nd YOC articles
The reason you don't care about "yield on cost" is because it is not related to the current earning potential of the money you have tied up on an investment. An example best illustrates this:
If you paid $100/share on something years ago, and now it has a "yield on cost" of 12% you are getting $12/year in dividends. However, if it is currently yielding 3% then that means the current share price is $400.
Now, if we know of some other stock that is currently yielding 9% as you suggest, then, all other things being equal, it is to our advantage to sell our stock at $400 (why would you sell it at cost when the market price is so much more?) and buy that other stock, thereby increasing our dividends to $36/year.
As we can see, the fact that we paid $100 for the original stock does not matter, only the current value. This is the same logic for why you should not consider your purchase price when deciding whether or not to sell a stock (assuming there aren't other motives such as tax write-offs).
As Henry said, "Yield on cost is a psychological trap that encourages one to remain invested in a stock even though there are better CURRENT yielding opportunities elsewhere". Happy investing.

[KopiKat]

Temperament,

Thank you for the YOC (Yield on Cost) info. In my earlier post, I also used a similar method to evaluate whether to sell my SPH, using the Market Price Yield as one of my criteria ie. 6.14% @ $3.91.

To give another example, I have StarHub @ average cost ~$2, which gives a YOC of ~10% yield. I decided to sell some recently, when the Market Price Yield hit <7%. If I'd based on my own YOC of ~10% and fooled myself further that it's higher than that cos' of total dividends collected so far, then I'd not have sold any at all. The main reason I sold (even tho' Yield ~7% is still very good) is cos' I was running low on free cash and I saw something else I liked, which'd dropped a lot during this very weak and volatile market.

But, I must qualify that Market Yield is only one of my main criterias for my stocks which fall under the Low Growth, Good Yield category. I also look at the payout ratio. For eg., for the most recent dividend payout, SPH is paying 100% of EPS while SingPost is ~75%. So even though both are currently yielding 6.5%, it's not exactly the same.

Another thing is, for a growth stock, the Yield becomes a minor criteria (for me). I'd be looking at the Growth Rate for Revenue + more importantly EPS. For example, I was lucky to have Thomson Medical previously. The growth was something like 10-20%+ p.a. for both Revenue and EPS over the whole period it was listed. Even though the Market Yield was 2-4% (w/o Special Div) and my YOC >10%, I'd stubbornly refused to sell it until I was forced to, by the G.O. from Peter Lim.

Note that the above only focusses on some very simplistic decison making criteria. For those who want to try something similar, I'd recommend that you add in your own other set of decision making criterias, such that you won't lose any sleep over any buy/sell decision.

[Musicwhiz]

Thanks Temperament and KopiKat for highlighting the dangers of being trapped in a "Yield on Cost" mindset. Granted, I used to have this mindset but now have adjusted it as follows:-

1) Assess the business moving forward on whether it is able to sustain or even increase dividends.
2) Assess the valuation of the business according to metrics such as PER and/or PB.
3) If it appears cheap at current levels, buy more, regardless of what my original cost was (as this is a sunk cost and thus irrelevant).
4) The yield which I focus on now is the current yield based on last done market price, but with an eye on the business and how well the yield would hold up.
5) However, when comparing yields across different investments, I am also aware of the different types of risk involved. Thus, I will not blindly choose a company/REIT/Trust whose yield is superior without evaluating if it is sustainable. I think for me, that word in BOLD is the most important - I am willing to accept a lower yield which I view as being more sustainable and likely to increase over the years, rather than a high one which is subject to decreases in future years (my investment mistakes have documented such examples in my investment history).

Regards.

[Temperament]

Thanks Temperament and KopiKat for highlighting the dangers of being trapped in a "Yield on Cost" mindset. Granted, I used to have this mindset but now have adjusted it as follows:-

1) Assess the business moving forward on whether it is able to sustain or even increase dividends.
2) Assess the valuation of the business according to metrics such as PER and/or PB.
3) If it appears cheap at current levels, buy more, regardless of what my original cost was (as this is a sunk cost and thus irrelevant).
4) The yield which I focus on now is the current yield based on last done market price, but with an eye on the business and how well the yield would hold up.
5) However, when comparing yields across different investments, I am also aware of the different types of risk involved. Thus, I will not blindly choose a company/REIT/Trust whose yield is superior without evaluating if it is sustainable. I think for me, that word in BOLD is the most important - I am willing to accept a lower yield which I view as being more sustainable and likely to increase over the years, rather than a high one which is subject to decreases in future years (my investment mistakes have documented such examples in my investment history).

Regards.

Hi Music Whiz,
"sustainable".
Yes at the end of the day, if company can't sustains the dividend payment, then we will start to worry about the survivability of the company.
Cheers!

[brattzz]

that's a good idea in a "fear" market...

[wsreader]

According to the press release today, "....Investment income fell 90.3% year-on-year to $0.6 million as a result of unrealised foreign exchange losses on investments arising from volatility in the financial markets."
Which currency exchange rate move 90.3% against SGD within one year, i wonder.

http://info.sgx.com/webcoranncatth.nsf/V...10036A04B/$file/PressRelease1QFY12.pdf?openelement

[D123]

According to the press release today, "....Investment income fell 90.3% year-on-year to $0.6 million as a result of unrealised foreign exchange losses on investments arising from volatility in the financial markets."
Which currency exchange rate move 90.3% against SGD within one year, i wonder.

http://info.sgx.com/webcoranncatth.nsf/V...10036A04B/$file/PressRelease1QFY12.pdf?openelement

Without looking at the announcement or SPH's numbers, losses from currency exchange can be amplified through the use of options, derivatives and/or leverage.