Tuesday, September 28, 2010

Singapore's Dividend Aristocrats

The S&P Dividend Aristocrats is a list of stocks in the S&P 500 index that has increased dividends for at least 25 years. As you might guess, this is definitely a very tall order and as of 2010, if I remember correctly, only 10% or 50 stocks made it to the list. It is expected that the list will further dwindle to 40 stocks or so which prompted some to ask whether the criteria is too stringent.

Well, that is the way with our world, I guess, when we don't make the cut, we can always lower the bar ourselves. Haha!

Anyways, some of the names on this prestigious list are very well known, like 3M, Johnson and Johnson, Becton Dickinson, Coca Cola and P&G etc. Thet last four are also famous holdings of our hero.

Intrigued, I went to take a look at which Singapore stocks had a good track record of increasing dividend. Well as our history is not as long, I used a looser criteria of increasing dividend for at least 8 out of the past 10 years.

Here is the list of stocks.


Well, I guess you are as disappointed as I am. Only 8 stocks made the cut. Of which 3 pays a miserable 2% dividend. 2 are in property and construction, a treacherous sector. Another 2 of them belong to the same group entity. And 1 of them is not even a Singapore company.

There are 2 banks, but value investors are very wary of banks bcos there are just too many moving parts to get a good read on these financial beasts. Even Buffett had his fair share of trouble with Salomon Brothers 20 years ago and now Goldman Sachs, which is being criticized for screwing clients left right centre.

Raffles Medical, one of the 2% yield stock, might be interesting but its valuation is way too high at 26x. Might be worth doing some research now and wait for a good entry point.

The truly investable Dividend Aristocrat of Singapore might be SPH but it's main business is in a declining franchise and its high property value is based on frothy valuation in a flood infested shopping district.

In a nutshell, using the dividend arisocrat criteria cannot help us find good stocks in Singapore. We might have some luck elsewhere in Asia.

Saturday, September 25, 2010

What constitute an investment?

The way I see it, an investment has to be something that can generate cashflow. Stocks give dividends, bonds give interest and real estate gives rental income. These are real investments.

However in the strange World of Wall Street Craft, anything and everything becomes a feasible investment, an asset class of its own. The recent boom earlier this decade being commodities.

But if you think about it, commodities shouldn't be considered an investment bcos you don't get a cashflow. Holding a ton of copper, or a ton of wheat doesn't give you cashflow. The whole premise is based on prices going up. And when it's based on just prices going up, then it's dangerously close to the idea of the Greater Fool Game. Where you can only make money by selling something that is worth very little, at a higher price, to a greater fool who is willing to buy.

That is why value investors are not interested in price, we are interested in value. Price merely tells us if we can get the asset below its value. If there was no transparent price on the asset, we are happy as long as we have cashflow. But if there is no cashflow, you cannot calculate an intrinsic value of the investment. And in that sense, commodities cannot be classified as an investable asset class. Needless to say, a lot of the newly created asset classes like art, wine, vintage watches and other funny stuff cannot be called investment.

However, if those above mentioned can somehow be construed to generate cashflow, then the story becomes different.

For e.g. if a couple of artworks can be put together at an exhibition hall, and the owner can charge fees for viewers, then we have a cashflow, and the whole business can then be valued. In the same vein, wine is not an investment but the vineyard is. Copper may not be a true investable asset class, but a copper mine or a mining co. is definitely investable.

Similarly, traditional assets that count as investments may not be such if it doesn't generate cashflow. The best examples would be perennial loss making companies. Think Chartered, NOL and the likes.

As the saying goes, cash is king. Well if cash is king, in my opinion, cashflow is then the true master of the universe.

Tuesday, September 21, 2010

The Story of Bak Kut Teh

Just heads up, this is a post with very little value add. I thought about this while eating Bak Kut Teh. Just for entertainment. :)

For the non-ASEANs reading this, Bak Kut Teh is a Chinese dish that originated in S.E.Asia that is made up of spare pork ribs cooked in traditional Chinese herbs and served in a soup. It is also usually served with rice and soy sauce. You can take a look at my half eaten set below.


There is an interesting urban myth about the origin of the dish. Coolies working in Singapore and Malaysia earlier last century had to do tough work like carrying heavy goods at the ports for the whole day. As they were very poor, eating meat was not an option and eating food lacking nutrition ultimately resulted in poor health, sickness and weak bodies and their ability to work to generate money.

So Bak Kut Teh came to the rescue. The coolies would buy ribs that nobody wanted from the butchers at a cheap price, mixed with simple herbs (also cheap, I think) and then eat with rice and soy sauce. Simple as it is, this dish gives them strength, helps to prevent sickness and allow them to work all year long.

Of course today Bak Kut Teh has evolved into a popular dish that actually costs more than normal hawker food and it is usually served with spare ribs with lots of meat, You Tiao (or fried dough) and other stuff.

So while eating Bak Kut Teh, I thought about investing and realized a few analogies which could be drawn.

1. Value for money

Obviously, value investing is about buying more for less. Buy a good company at a reasonable price. Buy things cheap. Bak Kut Teh stands for this. Well at least during the coolies' times. Cheap but nutritional, helps the coolies stay healthy, get work done, earn more money. Today it is a bit different lah.

2. No Fat

In investing we want to buy companies that are lean and mean with no fat. That's Bak Kut Teh! Companies must understand that they have to stay lean in order to generate good returns. Actually, we ourselves strive to stay healthy and keep those cholesterol away so that we can fend away the harmful effects of metabolic syndrome right?

3. Innovate in changing times

The origin of Bak Kut Teh crystallizes the spirit of innovation. First, the coolies or whoever working with them came up with this spectacular dish that helped improved lives. Then, over the years, the dish itself evolved to fit into society. Even today, it's a highly popular dish. In investing, we must also be on the lookout for companies that can keep re-inventing themselves. As we speak PC and PC related companies are dying, big names like Intel, Dell and Microsoft are going all out to re-invent themselves. Although I must say, it's very hard to predict which companies can successfully evolve.

As with individuals, a lot of people struggle to stay relevant in society bcos things are moving so fast, it just gets harder and harder. Perhaps the story of Bak Kut Teh is really about evolution and how we should always re-invent ourselves to be useful.

Wednesday, September 01, 2010

High Dividend Stocks

An updated post "High Dividend Stocks 2011" is finally out! Do check it out.

Here is a list of stocks that I generated using the following criteria

1. Market cap more than $50mn
2. Dividend yield more than 4%
3. Past 3 yr average ROE more than 9%
4. Past 3 yr FCF yield more than 7%
5. Past 3 yr EBIT margin more than 4%

Obviously, as with all quant screens, more work needs to be done to refine the results. The first counter definitely look strange. I mean, with dividend of 30%, in 3 yrs you get back your capital. How likely is that?

Chances are something is wrong with the firm or with the data.

The name that I thought might be interesting is Telechoice - which sells prepaid phonecards. With the immigration floodgate opening again, it might see some profit boost in the next few years.

The other safe and well-known dividend names like M1, Starhub, SATS etc, well should always try to buy more of these if you believe in the Singapore story.

Well a small gift to all the teachers reading this blog today!