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Business Times - 05 Jul 2011
Dividend stocks: quality counts too
By MICHELLE TAN
THERE has been a big buzz around dividend stocks since the last global financial meltdown as investors and funds start to see the importance of establishing a regular income source, especially when the going gets tough.
Moreover, with Singapore's population demographics reflecting a fast ageing population, dividend stocks also serve as an avenue to generate income to fund retirement especially for investors with weaker saving habits. However, are dividend stocks really such a god-send, or have they been over-hyped by financial media?
In general, analysts and investors ascribe a lower risk and volatility profile to dividend stocks due to their ability to generate regular streams of income that help bolster the ill-effects of a potential downturn.
But does this mean that dividend stocks are less likely than their lesser yielding peers to see price upswings due to their less volatile nature?
As a simple illustration, should one compare the basket of 30 Straits Times Index (STI) constituents with a basket of 30 dividend stocks, findings show that though both portfolios generated positive year-on-year price returns, the former reflected a higher annual return of 13.8 per cent as opposed to the 9.6 per cent registered by the dividend stock portfolio.
As such, based on the findings, it seems that dividend stocks tend to experience lower capital appreciation when compared to index stocks.
Having said that, the STI basket is made up of blue-chip quality counters that tend to be highly favoured by both institutions and layman investors alike.
Perhaps, if the comparison was drawn to a basket of lower cap counters, findings might have shown otherwise.
Now coming from a dividend perspective, dividend stocks triumphed over the STI basket with the former having a forecast consensus dividend yield average of 6.2 per cent in FY11 and 6.5 per cent in FY12 as compared to the latter's 3 per cent and 3.3 per cent for the respective financial years.
The findings are not surprising though investors should bear in mind that the STI portfolio has some dividend stocks, which would have given a slight lift to the basket's average yield.
Should the basket exclude dividend stocks entirely, the average dividend yield would have been even lower.
More pertinently, the dividend stock portfolio, unlike the STI one, is able to outstrip domestic inflation rates, which is cited as a key worry for investors today.
As such, investors who are unable to buy commodities like physical gold or property to hedge against inflation could perhaps turn to dividend stocks as their answer to a cost-efficient inflationary hedge.
But there are no fool-proof investments in this world. Just like any equity, dividend stocks are still susceptible to industry recessions and other sector-specific woes.
In fact, during the last recession, many dividend stocks such as real estate investment trusts (Reits) were not spared from the falling knife.
Admittedly, there was sunlight after the rain for investors that had the financial muscle to tide through the rough patch.
But for investors who were retrenched and needed the funds, liquidating dividend stocks such as Reits - and other non-dividend stocks - back then would have severely decimated their wealth.
All that said, it is an undeniable fact that all boats sink when the tide falls. But one of the better known ways to break the fall is to diversify.
After all, putting all your eggs in one basket is never a wise move, especially from a capital protection standpoint. And this holds true even for stocks with a more conservative risk profile, such as dividend stocks.
The key point to drive home is that whether one is planning for his retirement or is merely seeking extra side income, quality is still of paramount importance.
A high yielding stock does not always mean it is a good stock. Though a stock with sound fundamentals and with attractive yields to boot would be a wise investment option.
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05-07-2011, 04:14 PM
(This post was last modified: 06-07-2011, 01:40 PM by Jared Seah.)
I think some investors may confuse dividend stocks with defensive stocks.
They are same same but different! I wonder how many who bought during IPOs are still in the money despite all the "bountiful" dividends...
Having said that, lots of these "dividend plays" were launched before 2008 during good market sentiments - especially the trust vehicles. As they are "new" investment vehicles, not everyone understand them (me especially!)... But after the 2008 Lehman crisis, I have learnt a lot since:
1) REITs - quite a few have to recapitalise or even change management!? Interest rates and LTV matters! Not just looking at the attractive % yields only. REITs with high leverage are not defensive plays.
2) Water trust - it went no where... Taken private, but kudos to management for issuing preference shares. I not vested. Just taking notes to see if investing in preference shares is "better" than in "dividend plays". Time will tell.
3) Shipping trusts - 100% payout ratio gives good dividends during good times! But lost of customer and plunging vessel valuations can impact our straight line extrapolations!
4) Infrastructure trusts - Citispring anyone?
But one good thing is that investors knowledge have improved tremendously. Just note the recent Hutchinson Port Trust IPO.
I am not against all these "dividend plays". In fact I love them! But at the "right" price 
I am glad I listened to forum writers who posted questions in the old Wallstraits forum when REITs and Shippinig Trusts were introduced. (I am glad some have came here. And you know who these writers are! Respect!)
Time and patience. I am vested in a REIT and Infrastrucure trust. Bought them near the "lows" during the doom and gloom.
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Actually, I took the term 'Dividend Stocks' to mean 'Stocks that pay dividends' which is actually pretty broad instead of the REITs, Trusts and Preference Shares universe that the article seems to imply. Judging from Jared's response, I see I'm not the only one.
But, if a company with a long history of being well capitalised, generating healthy levels of cashflow and paying out dividends out of cash which they have no better avenue for reinvestment, isn't it a better candidate for investment consideration rather than REITs or Trusts which tend to be more levered vehicles?
Or have I missed something?
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(05-07-2011, 04:31 PM)kazukirai Wrote: But, if a company with a long history of being well capitalised, generating healthy levels of cashflow and paying out dividends out of cash which they have no better avenue for reinvestment, isn't it a better candidate for investment consideration rather than REITs or Trusts which tend to be more levered vehicles?
I am with you here. I do not have any REITs or Trust in my portfolio simply because I do not like their leverage.
My own definition of dividend stocks are:
1. Yield should be 5% or more
2. Long history of consistent dividends payment
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05-07-2011, 05:04 PM
(This post was last modified: 05-07-2011, 06:22 PM by Nick.)
I updated the business trust performance list taking into account the recent share price movements and corporate actions (rights, dividends etc). Pls feel free to point out any errors made in the data presented.
Ascendas India Trust
IPO Price: $1.18 (IPO’ed in 2H 07)
Current Price: $0.95
Dividends Declared: $0.2776
Net Loss: $0.0476
Net Gain Percentage: 4.03%
CitySpring
IPO Price: $0.89 (IPO’ed in early 2007)
IPO Price after adjusting for 1 for 1 rights @ $0.48: $0.685
Dividends Declared: $0.1583 (pre rights) & $0.0525 (post rights)
Dividends Declared adjusting for rights: $0.15265
Current Price: $0.495
Net Loss: $0.03735
Net Loss Percentage: 5.45%
First Ship Lease Trust
IPO Price: US$0.98
Dividends Declared: US$0.3167
Current Price: US$0.2845 (using current exchange rate)
Net Loss: US$0.3788
Net Loss Percentage: 38.7%
India Bulls Properties Investment Trust
IPO Price: $1.00 (June 2008)
IPO Price after adjusting for 53 for 100 rights @ $0.16: $0.709
Dividends Declared: 0
Current Price: $0.19
Net Loss: $0.519
Net Loss Percentage: 73.2%
K-Green Trust
IPO Price: $1.11 (based on 1st day closing price in June 2010)
Dividends Declared: 0.0431
Current Price: $1.075
Net Gain: $0.0081
Net Gain Percentage: 2.7%
Pacific Shipping Trust
IPO Price: US$0.45 (IPO’ed in 2H 2006)
IPO Price Adjusting for offer of 3 for 4 @ USD 0.365: US$0.414
Dividends Declared: US$0.099253 (pre rights) & US$0.07533 (post rights)
Dividends Declared (adjusting for rights): US$0. 0.148226
Current Price: US$0.36
Net Gain: US$0.094226
Net Gain Percentage: 22.7%
Rickmers Maritime Trust
IPO Price: US$1.00
Current Price: US$0.329 (current exchange rate)
Dividends Declared: US$0.21354
Net Loss: US$0.45746
Net Loss Percentage: 45.7%
Treasury China Trust
IPO Price: $1.76 (based on 1st day closing price)
Dividends Declared: $0.050
Current Price: $1.945
Net Gain: $0.235
Net Gain Percentage: 13.3%
MIIF
IPO Price: $1.00 (2005)
Current Price: $0.57
Dividends Declared: $0.364
Net Loss: $0.066
Net Loss Percentage: 6.6%
Global Investment Limited
IPO Price: $1.06
IPO Price Adjusting for offer of 2 for 5 @ $0.138: $0.7965
Dividends Declared: $0.1459 (adjusted for rights)
Current Price: $0.158
Net Loss: $0.4926
Net Loss Percentage: 61.8%
HPH Trust
IPO Price: US$1.01
Dividends Declared: 0
Current Price: US$0.85
Net Loss: $$0.16
Net Loss Percentage: 15.8%
Treasury China Trust is the only business trust trading above its IPO price. It, together with PST, are the only ones which provided meaningful returns to unit-holders since it IPO. The rest failed to do so due to a multitude of reasons. In terms of DPU payouts and sustainability, I would say that only Ascendas India and PST have provided stable payouts and look likely to continue to do so. The reason is simple - Ascendas India owns freehold properties and maintains very low gearing of merely 18%. PST, on the other hand, is the only business trust to retain cash-flow from depreciation to repay loans and re-generate (and grow) its equity. MIIF and TCT has started buying back units from open market. The former has repurchased 2.5% of its unit float while the latter has repurchased 1% of its unit float. This is unprecedented since Management doesn't benefit from increase in AUM (and fees) so it will be interesting to see where this will lead to. GIL and Cityspring launched a rights issue this year. GIL is doing so to build up its AUM and hopefully increase its DPU going forward with more astute investment decisions from its newly appointed Manager. Cityspring failure to carry out loan repayment since inception has return to haunt its B/S. At the moment, only the 3 shipping trust are repaying loans of which two (FSLT, RMT) are being forced to do so by the lending banks. MIIF underlying assets have a loan repayment profile and can be seen in its presentation slides.
In all, judging by their performance, it isn't very wise to purchase yield stocks when it is newly listed. Moreover, yield stocks (especially trust) should meet two basic criteria - i) Can they repay their loans independently ? ii) Can they replenish their asset base independently ? Look at this first before looking at the yield.
Disclaimer: Please verify the figures independently. There might be errors in the data/computation.
(Not Vested in any business trust)
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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05-07-2011, 06:21 PM
(This post was last modified: 05-07-2011, 06:21 PM by tonylim.)
Nick,
Well done. Thanks.
Nick,
Well done. Thanks.
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(05-07-2011, 05:04 PM)Nick Wrote: I updated the business trust performance list taking into account the recent share price movements and corporate actions (rights, dividends etc). Pls feel free to point out any errors made in the data presented.
Ascendas India Trust
IPO Price: $1.18 (IPO’ed in 2H 07)
Current Price: $0.95
Dividends Declared: $0.2776
Net Loss: $0.0476
Net Gain Percentage: 4.03%
CitySpring
IPO Price: $0.89 (IPO’ed in early 2007)
IPO Price after adjusting for 1 for 1 rights @ $0.48: $0.685
Dividends Declared: $0.1583 (pre rights) & $0.0525 (post rights)
Dividends Declared adjusting for rights: $0.15265
Current Price: $0.495
Net Loss: $0.03735
Net Loss Percentage: 5.45%
First Ship Lease Trust
IPO Price: US$0.98
Dividends Declared: US$0.3167
Current Price: US$0.2845 (using current exchange rate)
Net Loss: US$0.3788
Net Loss Percentage: 38.7%
India Bulls Properties Investment Trust
IPO Price: $1.00 (June 2008)
IPO Price after adjusting for 53 for 100 rights @ $0.16: $0.709
Dividends Declared: 0
Current Price: $0.19
Net Loss: $0.519
Net Loss Percentage: 73.2%
K-Green Trust
IPO Price: $1.11 (based on 1st day closing price in June 2010)
Dividends Declared: 0.0431
Current Price: $1.075
Net Gain: $0.0081
Net Gain Percentage: 2.7%
Pacific Shipping Trust
IPO Price: US$0.45 (IPO’ed in 2H 2006)
IPO Price Adjusting for offer of 3 for 4 @ USD 0.365: US$0.414
Dividends Declared: US$0.099253 (pre rights) & US$0.07533 (post rights)
Dividends Declared (adjusting for rights): US$0. 0.148226
Current Price: US$0.36
Net Gain: US$0.094226
Net Gain Percentage: 22.7%
Rickmers Maritime Trust
IPO Price: US$1.00
Current Price: US$0.329 (current exchange rate)
Dividends Declared: US$0.21354
Net Loss: US$0.45746
Net Loss Percentage: 45.7%
Treasury China Trust
IPO Price: $1.76 (based on 1st day closing price)
Dividends Declared: $0.050
Current Price: $1.945
Net Gain: $0.235
Net Gain Percentage: 13.3%
MIIF
IPO Price: $1.00 (2005)
Current Price: $0.57
Dividends Declared: $0.364
Net Loss: $0.066
Net Loss Percentage: 6.6%
Global Investment Limited
IPO Price: $1.06
IPO Price Adjusting for offer of 2 for 5 @ $0.138: $0.7965
Dividends Declared: $0.1459 (adjusted for rights)
Current Price: $0.158
Net Loss: $0.4926
Net Loss Percentage: 61.8%
HPH Trust
IPO Price: US$1.01
Dividends Declared: 0
Current Price: US$0.85
Net Loss: $$0.16
Net Loss Percentage: 15.8%
Treasury China Trust is the only business trust trading above its IPO price. It, together with PST, are the only ones which provided meaningful returns to unit-holders since it IPO. The rest failed to do so due to a multitude of reasons. In terms of DPU payouts and sustainability, I would say that only Ascendas India and PST have provided stable payouts and look likely to continue to do so. The reason is simple - Ascendas India owns freehold properties and maintains very low gearing of merely 18%. PST, on the other hand, is the only business trust to retain cash-flow from depreciation to repay loans and re-generate (and grow) its equity. MIIF and TCT has started buying back units from open market. The former has repurchased 2.5% of its unit float while the latter has repurchased 1% of its unit float. This is unprecedented since Management doesn't benefit from increase in AUM (and fees) so it will be interesting to see where this will lead to. GIL and Cityspring launched a rights issue this year. GIL is doing so to build up its AUM and hopefully increase its DPU going forward with more astute investment decisions from its newly appointed Manager. Cityspring failure to carry out loan repayment since inception has return to haunt its B/S. At the moment, only the 3 shipping trust are repaying loans of which two (FSLT, RMT) are being forced to do so by the lending banks. MIIF underlying assets have a loan repayment profile and can be seen in its presentation slides.
In all, judging by their performance, it isn't very wise to purchase yield stocks when it is newly listed. Moreover, yield stocks (especially trust) should meet two basic criteria - i) Can they repay their loans independently ? ii) Can they replenish their asset base independently ? Look at this first before looking at the yield.
Disclaimer: Please verify the figures independently. There might be errors in the data/computation.
(Not Vested in any business trust)
Thanks for the comparison. But what do you mean by " replenish their asset base independently "??
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(05-07-2011, 08:43 PM)billcoke Wrote: (05-07-2011, 05:04 PM)Nick Wrote: I updated the business trust performance list taking into account the recent share price movements and corporate actions (rights, dividends etc). Pls feel free to point out any errors made in the data presented.
Ascendas India Trust
IPO Price: $1.18 (IPO’ed in 2H 07)
Current Price: $0.95
Dividends Declared: $0.2776
Net Loss: $0.0476
Net Gain Percentage: 4.03%
CitySpring
IPO Price: $0.89 (IPO’ed in early 2007)
IPO Price after adjusting for 1 for 1 rights @ $0.48: $0.685
Dividends Declared: $0.1583 (pre rights) & $0.0525 (post rights)
Dividends Declared adjusting for rights: $0.15265
Current Price: $0.495
Net Loss: $0.03735
Net Loss Percentage: 5.45%
First Ship Lease Trust
IPO Price: US$0.98
Dividends Declared: US$0.3167
Current Price: US$0.2845 (using current exchange rate)
Net Loss: US$0.3788
Net Loss Percentage: 38.7%
India Bulls Properties Investment Trust
IPO Price: $1.00 (June 2008)
IPO Price after adjusting for 53 for 100 rights @ $0.16: $0.709
Dividends Declared: 0
Current Price: $0.19
Net Loss: $0.519
Net Loss Percentage: 73.2%
K-Green Trust
IPO Price: $1.11 (based on 1st day closing price in June 2010)
Dividends Declared: 0.0431
Current Price: $1.075
Net Gain: $0.0081
Net Gain Percentage: 2.7%
Pacific Shipping Trust
IPO Price: US$0.45 (IPO’ed in 2H 2006)
IPO Price Adjusting for offer of 3 for 4 @ USD 0.365: US$0.414
Dividends Declared: US$0.099253 (pre rights) & US$0.07533 (post rights)
Dividends Declared (adjusting for rights): US$0. 0.148226
Current Price: US$0.36
Net Gain: US$0.094226
Net Gain Percentage: 22.7%
Rickmers Maritime Trust
IPO Price: US$1.00
Current Price: US$0.329 (current exchange rate)
Dividends Declared: US$0.21354
Net Loss: US$0.45746
Net Loss Percentage: 45.7%
Treasury China Trust
IPO Price: $1.76 (based on 1st day closing price)
Dividends Declared: $0.050
Current Price: $1.945
Net Gain: $0.235
Net Gain Percentage: 13.3%
MIIF
IPO Price: $1.00 (2005)
Current Price: $0.57
Dividends Declared: $0.364
Net Loss: $0.066
Net Loss Percentage: 6.6%
Global Investment Limited
IPO Price: $1.06
IPO Price Adjusting for offer of 2 for 5 @ $0.138: $0.7965
Dividends Declared: $0.1459 (adjusted for rights)
Current Price: $0.158
Net Loss: $0.4926
Net Loss Percentage: 61.8%
HPH Trust
IPO Price: US$1.01
Dividends Declared: 0
Current Price: US$0.85
Net Loss: $$0.16
Net Loss Percentage: 15.8%
Treasury China Trust is the only business trust trading above its IPO price. It, together with PST, are the only ones which provided meaningful returns to unit-holders since it IPO. The rest failed to do so due to a multitude of reasons. In terms of DPU payouts and sustainability, I would say that only Ascendas India and PST have provided stable payouts and look likely to continue to do so. The reason is simple - Ascendas India owns freehold properties and maintains very low gearing of merely 18%. PST, on the other hand, is the only business trust to retain cash-flow from depreciation to repay loans and re-generate (and grow) its equity. MIIF and TCT has started buying back units from open market. The former has repurchased 2.5% of its unit float while the latter has repurchased 1% of its unit float. This is unprecedented since Management doesn't benefit from increase in AUM (and fees) so it will be interesting to see where this will lead to. GIL and Cityspring launched a rights issue this year. GIL is doing so to build up its AUM and hopefully increase its DPU going forward with more astute investment decisions from its newly appointed Manager. Cityspring failure to carry out loan repayment since inception has return to haunt its B/S. At the moment, only the 3 shipping trust are repaying loans of which two (FSLT, RMT) are being forced to do so by the lending banks. MIIF underlying assets have a loan repayment profile and can be seen in its presentation slides.
In all, judging by their performance, it isn't very wise to purchase yield stocks when it is newly listed. Moreover, yield stocks (especially trust) should meet two basic criteria - i) Can they repay their loans independently ? ii) Can they replenish their asset base independently ? Look at this first before looking at the yield.
Disclaimer: Please verify the figures independently. There might be errors in the data/computation.
(Not Vested in any business trust)
Thanks for the comparison. But what do you mean by "replenish their asset base independently "??
A significant number of Trust owns assets with fixed lifespan - vehicles, BOT plants, concession rights for infrastructures. A business trust with a sustainable capital structure should be able to regenerate the equity invested in such assets over the life-span so as to re-invest it and maintain its distributions indefinitely (assuming no change in revenue). For example, a shipping trust must retain cash-flow from depreciation in order to preserve its NAV. The cash retained could be used to repay debt first and after that (10-15 years), it could be used to regenerate the equity portion of the original investment. Once the vessel is fully depreciated and scrapped, the Trust would have regenerated its original equity and be debt free thereby allowing it to purchase new vessels and lease it out. In the case of BOT assets (KGT, HPHT), the Trust must retain some of the cash-flow in order to prevent NAV from eroding as the service receivables declines each quarter. The Trust can use the cash retained to purchase new BOT plants in the future. This allows the Trust to operate as a going concern instead of a self liquidating trust. In short, a sustainable trust only pays out its operating profit (which takes into account depreciation) while a self liquidating trust pays out every single cent of cash it gets.
Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk. I am not a qualified financial adviser so I do not give any advice. The postings reflects my own personal thoughts which may or may not be accurate.
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06-07-2011, 01:56 PM
(This post was last modified: 07-07-2011, 02:47 PM by Jared Seah.)
A superb post Nick! Respect!
Yes, Ben and Kazukirai, I have found quite a few stocks that have consistent dividend payout history with little leverage. Just buy a copy of Business Times and we can find lots of high yielders. But have to do home work. Some of them have yo-yo dividend payout... Some are just "flash-in-the-pan" with yields of more than 20%!!! (more as a result the share price crashed...) Twelve month trailing yield is one thing, forward yield is another!
I learn as I go along. Making mistakes are OK, it's part of my learning. But repeating the same mistake twice is not!
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