Received GAB's Dividend

1. Just received GAB's dividend. :) Next round of dividend should be around April. Touching RM10 and above, is just a matter of time. :)

2. BJTOTO ramp up 10sen instead after the news. Thought the sell off would be greate but it turn out otherwise. Nevertheless, just keep till the ex if can't buy more.

3. All futures stock are in green zone. :) would expect another good run tonight for Dow Jones. Just have to wait and see. C may run up further. :)

4. As of today, stay put and do nothing. :) All portfolio remain unchanged. Till then happy trading.

Of dividends and sustainability (2)

Continuing from our previous piece: It is not surprising that most companies that pay consistent dividends also have strong balance sheets, in that the cash pile can be utilised to buffer against short-term earnings shortfalls.

 

Take for instance, UAC. The company raised payout levels in years of weak earnings to keep dividends from falling too steeply. Payout in 2008 was as high as 95% before falling back to 74% last year on the back of a recovery in earnings.

 

However, weak earnings prospects may see dividends being pared back, again, this year. Although sales were up 11% year-on-year (y-o-y) in 1H10, net profit dropped 16% over the same period as a result of competitive pricing pressure. Excluding the RM3.3 million in one-off gains, earnings fell by a steeper 51% y-o-y. With rising cost of raw materials such as cement and pulp, UAC expects further margins erosion in 2H10.

 

Meanwhile, its cash pile has been reduced to roughly RM29 million at end-June 2010, from as high as RM178 million back in 2006 — as the result of earnings weakness in the ensuing years and a RM90 million loan to its holding company.

 

Net dividends totalled 19.5 sen per share in 2009, or 74% of net profit, which gave shareholders a return of 5.6% at the current share price of RM3.46. The company indicated that dividend payout in 2010-2011 would be at least 60% of profits. But looking at its current pace of earnings, we doubt investors will earn a similar yield on the stock this year.

 

UAC is one of the largest manufacturers of cellulose fibre cement products in the country. Fibre cement products are used primarily in residential houses as ceilings, roofing, cladding, eave lining and partitioning. It also manufactures steel roof trusses used for public buildings like schools, computer labs and polytechnics.

UAC is 65.2% owned by the Boustead group, which is in turn controlled by Lembaga Tabung Angkatan Tentera.

 

Cash pile keeps YHS’ dividends fairly steady

Similarly, Yeo Hiap Seng (M) Bhd’s strong cash position — net cash totalling RM89.1 million at end-June 2010 — helped keep dividends fairly steady despite earnings swings over the past few years.

 

For instance, the home-grown food & beverage company paid net dividends totalling 6.75 sen per share in 2009, despite reporting net loss of RM11.1 million dragged down by some RM15.3 million in non-cash assets impairment charges. Its existing cash pile is sufficient to cover 8.6 times dividends at this level.

 

Positively, investors could be rewarded with higher dividends this year. The company’s underlying business fared much better in 1H10, operating earnings improving to RM10.8 million from RM1.7 million in the previous corresponding period. YHS attributed its improvement to lower raw material costs and better overhead costs control. Net profit for the period strengthened to RM300,000, after taking into account RM11 million in assets impairments, from a net loss of RM6.6 million in 1H09.

 

We estimate net dividends this year could improve to 10 sen per share, which would give shareholders a net yield of 6.8% at the current price of RM1.47.

 

From a small shop making soya sauce, YHS has grown over the years, expanding its product range to include soya bean and Asian traditional beverages, chilli and culinary sauces, sesame oil and instant noodles — marketed under household brand names such as Yeo’s, Cintan and Justea.

 

Can TM sustain larger than earnings payout?

Whilst a strong balance sheet can provide buffer against short-term earnings swings, dividends that consistently exceed earnings would be difficult to sustain over the longer-term, particularly if the capital expenditure requirements remain high.

 

Telekom Malaysia (TM) could be such a case. The telco currently has a dividend policy of RM700 million or 90% of net profits, whichever is higher. It stuck to this policy despite earnings falling to RM643 million in 2009. Earnings looks likely to fall short again this year — net profit totalled roughly RM184 million in 1H10, excluding non-cash forex gains.

 

Its fixed voice business has been on the decline in recent years with the shift towards cellular phones. Meanwhile, its dominance in the fixed broadband segment may also come under pressure with the increasing consumer preference for mobile solutions, for both voice and data.

 

TM is betting heavily on its fibre-to-home high-speed broadband business to rejuvenate growth — but uptake has been slow and upfront costs are high. The HSBB project carries a RM11.3 billion price tag, of which just about RM2 billion has been spent so far. Taking off the RM2.4 billion that will be covered by the government, TM has to fork out some RM8.9 billion in investments. In addition, its annual maintenance capex could total some RM1 billion. The company estimates capex of some RM2.4 billion this year.

 

With gearing of almost 40%, or net debt totaling RM2.93 billion at end-June 2010, it would appear that unless earnings improved significantly something would have to give, perhaps sooner rather than later — either to pare back on capital spending or dividend payments. — InsiderAsia

Of dividends and sustainability

Earlier this year, the broader market rally was led by big-cap blue-chip stocks, which lifted the benchmark FBM KLCI 17.1% year-to-date. This was followed by rotational interest in the infrastructure, construction and building materials sectors on the back of the unveiling of several big government projects.

 

Plantation stocks then saw some renewed interest as crude palm oil prices bounded higher.

 

Of late, there was a noticeable shift in interest towards lower-liner stocks, which also carries a dose of speculative flavour. Trading volume jumped — the average daily on-market volume, so far this month, rose to roughly 1.18 billion shares, the highest recorded since January 2010.

 

Trading on the local bourse would probably remain fairly upbeat in the near term, in line with improved sentiment in the global markets. Nonetheless, some caution may be warranted. For stock prices to rise further, earnings will have to keep pace. But uncertainties continue to dog the global economic outlook while increased volatility in currencies and commodity prices would affect margins.

 

More risk-averse investors may turn to yield stocks for their steady dividend incomes. Some are looking further, beyond the usual suspects such as BAT, DiGi, Panasonic Malaysia and Berjaya Sports Toto, to smaller companies with high dividend payout that may offer better yields.

 

Apollo: Flattish growth but net yield at 5.7%

Apollo Food Holdings is one such company. The company distributed between 57% and 71% of its net profit to shareholders over the last five years.

 

Although earnings growth has been somewhat patchy, the company has maintained annual net dividends around 18 to 19 sen per share, except for FY09 ended April (at the height of the global financial crisis) when it was reduced to 15 sen per share.

 

The Johor-based company manufactures chocolate wafer products, layer cakes and Swiss roll products for both the domestic and overseas markets. Exports accounted for some 42% and 31% of the company’s sales and operating profit, respectively, in FY10.

 

Sales were up 11% year-on-year (y-o-y) in 1QFY11 but net profit was down 24% y-o-y, affected partly by lower gains from assets disposals as compared with the previous corresponding quarter. We expect full-year earnings will probably be flattish compared with FY10.

 

Despite the absence of a strong growth outlook, Apollo’s share price has fared quite well, having recovered smartly from the lows in December 2009. This is likely attributed, at least in part, to its higher than market average yields and strong balance sheet.

 

Apollo is sitting on net cash totalling RM56.9 million and net tangible assets of RM2.62 per share as at end-July 2010. Assuming net dividends totalling 19.3 sen per share, the same level as last year, shareholders will earn a net yield of 5.7% at the current share price of RM3.40. We estimate the stock is now trading at roughly 11 to 12 times forward earnings.

 

Past payments may not always be indicative of future dividends

Clearly, the sustainability of dividends is a key issue for yield stocks. Traditionally, high-yielding stocks tend to have steady and predictable income and cash flow streams and low capital expenditure requirements, for instance, independent power producers and mature industries like gaming. Consumer stocks too generally fit the profile but this is not always so. Investors will still have to assess their individual operational risks.

 

Take for instance, Hai-O Enterprise, which saw its share price fall sharply since hitting a high of about RM4.70 in March 2010. Established in 1975, the company has over the years morphed into a household name offering a wide range of Chinese medicines, medicated tonics, wellness, beauty and healthcare products.

 

Hai-O had done very well, with sales and net profit growing at compound annual rate of 36.6% and 62.2% from FY06 ending April and FY10, respectively — driven mainly by its multi-level marketing (MLM) business, which accounted for 82% of sales and 79% of pre-tax profits in the latest financial year. Other divisions, including wholesale, retailing and manufacturing make up the remaining balance.

 

Hai-O: Poor earnings outlook likely to affect dividends

However, both sales and earnings plunged sharply in 1QFY11, by about 63% and 58% y-o-y, respectively. The company’s MLM business was negatively affected by more stringent rules on member recruitment following amendments to the Direct Sales Act.

 

Outlook for the rest of the financial year remains poor as Hai-O restrategises its business. Hence, even though the company is maintaining its minimum 50% dividend payout policy — and has net cash totalling over RM96 million at end-July 2010 — the expected earnings contraction will almost certainly mean lower dividends in the foreseeable future.

 

At the pace of earnings decline in 1QFY11, net dividends this year would be less than half the 22.5 sen per share — which gave net yield of 5.6% at the prevailing price of RM3.22 — paid in FY10.

 

Brighter outlook for White Horse

The outlook for White Horse, on the other hand, is looking brighter. The company appears to be on track for another good year. Sales in 1H10 were up 17% y-o-y to RM254.7 million while net profit grew 39% y-o-y to RM29.6 million. At this pace, earnings will comfortably exceed last year’s RM60.5 million.

 

The company, established in 1992, is today one of the largest manufacturers of ceramic and homogenous tiles in the country. Demand is expected to remain robust given the prevailing upbeat outlook for the property sector.

 

White Horse upped net dividends to 10 sen per share last year, from seven sen per share in 2008, on the back of a 16% growth in net profit. Better earnings in the current year bode well for further increase in dividends.

 

But conservatively assuming dividends remain at 10 sen per share, the stock is still offering an attractive net yield of 5.8% at the current price of RM1.72. There appears limited downside given that its shares are now trading at little over six times estimated earnings and below its net assets per share of RM2.60. White Horse had marginal net debt of RM4.9 million at end-June 2010.

We will discuss a few other high-yielding stocks in our next piece.

Dividend-paying companies

Personal Investments - By Ooi Kok Hwa

Despite investing in profit-making companies, a lot of investors have been complaining that they are not getting the desired returns from the companies that they have invested in.

One of the main reasons is that these companies usually pay very low dividends or no dividends to their investors.

Hence, even though these companies make good profits from their businesses, they are not sharing the profits with their minority investors.

Companies that pay good dividends to their investors imply that the major shareholders of these companies are willing to share their wealth with minority investors.

Given that minority investors have no control over these companies, they have only two sources of returns from their investments, namely dividend returns and capital gains.

If the companies refuse to reward their investors with good dividends, then investors need to make sure that they buy low and sell high in order to get capital gains.

Warren Buffett proposes one concept, which is called the one-dollar premise - for every dollar profit that a company makes, it either pays one dollar dividend to its shareholders or if that dollar is being retained, it needs to bring additional one dollar market value.

Companies with good management will always try to maximize the wealth of their investors.

The following table will show the importance of dividends to an investor.

Assuming you have invested in Company A with an average cost of RM15.

Company A generates earnings per share (EPS) of RM1.00 with price-earnings ratio (PER) of 15 times and pay out 80% of its profits as dividends or dividend per share of RM0.80.

Hence, with the purchase price of RM15, the dividend yield (DY) is 5.3%.

We also assume that Company A has a constant PER of 15 times and dividend payout ratio of 80% for the next 20 years.

Annual growth rate of EPS is 8% based on our country’s average nominal GDP growth rate of 8%.

For the first 10-year period, given that our original cost of investment is fixed at RM15, our dividend yield will be getting higher and higher.

For example, first year DY of 5.3% is computed based on DPS of RM0.80 divided by RM15.

And second year DY of 5.8% is calculated based on DPS of RM0.86 (RM0.80 x 1.08) divided by the same original purchase price of RM15.0.

As the company’s businesses continue to grow and generate higher profits, as long as the company practices a fixed dividend payout policy (our example is based on a fixed dividend payout ratio of 80%), investors’ DY will increase.

At Year 10, given that our purchase price remains the same at RM15, with a DPS of RM1.60, our DY is 10.7% (1.60/15.0).

Thus, the average DY for the first 10-year period is 7.7%.

Coupled with the annual capital gain of 8% (the share price has grown by annual growth rate of 8% from RM15 to RM29.99), investors will generate an annual total returns rate of 15.7% (7.7% + 8%)!

If we keep this stock for another 10-year period, our next 10-year annual total return is 24.7% (16.7% + 8%)!

From here, we can see that if we have invested in good companies that always reward their investors with very high dividend payments, our returns will be huge if we hold it long term.

Normally, consumer-based companies and companies that do not need high capital expenditures will be able to reward shareholders with good dividend payments.

Besides, major shareholders must be willing to share their profits with their investors through good dividend payments.

Ooi Kok Hwa is an investment adviser and managing partner of MRR Consulting.

High Dividend Yield Stocks

Above the latest REIT closing price as at 2/3/2010.

As one should know by now, dividend play an important role in cushioning your share price, it is also serving as a good catalyst driven the share price up when a good result is announced with better dividend payout. Refer to my previous posting for dividend here and assessing REITs here.

Another important factor is “timing”. Yes, the date for REITs dividends to be paid. It is utmost important that any good result couple with higher dividend will somehow spur some excitement on share price. All REITs have a tendency to pay 90% of it net profit to shareholder as dividend or other may call it income distribution in which I find it very attractive, thus, it is worth taking a closer look if one were to opt for long term dividend and steady income "for living". Generally below are the dates of month that we should focus on :-

JAN     Ahp, Alaqar, Arreit, Atrium, Axreit, Bsdreit, Hektar, Qcapita, Stareit, Twrreit, Uoareit

MAY    AMFIRST, ATRIUM, AXREIT, HEKTAR

AUG     Ahp, Alaqar, Arreit, Atrium, Axreit, Bsdreit, Hektar, Qcapita, Stareit, Twrreit, Uoareit

NOV     AMFIRST, ATRIUM, AXREIT, HEKTAR

Knowing the months which draw nearer and REITs that may announce dividend, we may at least gauge when to increase or reduce our stake on them. Preferably holding most of it when the value you think is right and engaging them in long hual for its dividend. So, put a little effort there and enjoy picking your REITs and building up your wealth. Till then happy trading and couple with my favorite quote “May The Best Price be Yours”.

Sailing through turbulence time with high dividend yield stocks

In bull or bear markets, high dividend yield stocks are always a safer bet. Despite the recovery in stock prices since March 09, it may be wise to turn slightly more defensive and go for dividend yielding stocks now, in preparation for any potential turbulence ahead.

High-yield stocks are an attractive alternative to low returns in fixed income instruments or fixed deposits. Currently, 3-year Malaysian Government Securities (MGS) promise yields of around 3.3% while 1-year fixed deposit rates generate returns around 2.0-2.5%.

For investors with a smaller risk appetite but wish to gain entry into the stock market may find high dividend yield stocks as a good entry points. In bear markets, stocks with high dividend yields become even more desirable because they deliver real downside protection. In the current low interest rate environment, these stocks will provide better returns on investment.

We have short listed 20 high dividend yield stocks, which we feel are worth looking at. Our criteria for selection includes:

(1) Gross dividend yield of at least 6% for FY2010

(2) Strong management

(3) Stable earnings for consistency in dividend payout

(4) Preferably trading in single digits or close to the market PER or PBV

(5) Sound balance sheets.

Other than high yield stocks, we also included five high yield REITS for their stable income streams and consistency in dividend payout.

We have also selected 13 companies with high net cash per share which we believe may offer upside surprises in future dividend payments due to its cash flow generating capability.

Understanding Dividend Payout Ratio

Dividend Payout Ratio (DPR) is one of the metrics used in fundamental analysis.

It almost seems like a measurement invented because it looked like it was important, but nobody can really agree on why.

The DPR (it usually doesn’t even warrant a capitalized abbreviation) measures what a company’s pays out to investors in the form of dividends.

A direct calculation of the DPR is by dividing the annual dividends per share by the Earnings Per Share.

DPR = Dividends Per Share / EPS

For example, if a company like PBBANK paid out 55sen per share in annual dividends and had 76.93sen in EPS, the DPR would be 71%. (55 / 76.93 = 71%)

The real question is whether 71% is good or bad and that is subject to interpretation. Growing companies will typically retain more profits to fund growth and pay lower or no dividends.

Companies that pay higher dividends may be in mature industries where there is little room for growth and paying higher dividends is the best use of profits (Beverage, Gaming, Telco & REIT is fall into this group).

Either way, you must view the whole DPR issue in the context of the company and its industry. By itself, it tells you very little.