Friday, December 16, 2011

High Dividend Stocks 2011

Holiday seasons are here again and here is the long awaited update on the high dividend names in Singapore. How time files, the last one, which is also the most read post on this blog, was done more than a year ago.

Using almost the same criteria as last yr:

1. Market cap more than $50mn
2. Dividend yield more than 4%
3. Past 3 yr average ROE more than 12%
4. Past 3 yr FCF yield more than 7%
5. Past 3 yr EBIT margin more than 4.5%

We get over 50 stocks. This first installment shows the top 20 names. Actually I tweaked the criteria a bit bcos using the old one (with ROE of 9%) will get close to 70 stocks which will stretch the series too long.

Again I must warn that such lists usually cannot help investors make money. It is a mere first cut for diligent analysts to dig further for gems.

A couple of names on last year's list is gone now. One of top names: Best World completely collapsed. It's sales decline 30% and its share price halved. I didn't drill into the details, but you can imagine there would be a few of these bombs in a list like this.

So pls do your homework!

Incidentally, the name we discussed in the post last year: Transpac did very well. It returned $1.1 to shareholders but it's share price only fell from $1.7 to $1.5, this means that people who bought in Sep 2010 when the post was out would have made 50% in 1 year excluding tax effects.

But as alluded to last year, it is a difficult co. to understand as they are not running a normal manufacturing business. Rather it's now more an investment holding company.

Anyways here's the bonus (or bomb! depending on how the stocks will do in the next 3-5 yrs). Based on my limited experience, I believe the following co.s are genuinely good businesses to own and should help perserve capital over the long run.

These are co.s that either have a reputation for quality management or in a good business or both. Investors who had looked at Sg stocks for some time would be familiar. Again, caveat emptor, pls don't just buy blindly. Do your own homework.

1. Adampak: Packaging co., makes stickers and films and also helps distribute 3M products. Key risk: High exposure to HDD.

2. Boustead: Engineering co. run by FF Wong, an astute manager. Key risk: cyclical nature of business. Fellow blogger Musicwhiz covers this stock very well.

3. Viz Branz: 3-in-coffee and cereal maker. Great business in China and Asia but weaker than Super Coffee. Key risk: Battle for control within family members.

4. SATS: Big food supplier in Singapore (for Changi and the Army), blue chip. Key risk: Declining Sg male population, SIA squeezing them and relatively high valuation and payout already.

So, that's all folks. Stay tuned for the next few installments!

Wednesday, December 14, 2011

Meaningless Millionaires

We might have reached the end of the line for fiat currencies. This has been talked about in economic circles but perhaps the most people are still not aware of its drastic consequences. While nobody thinks it will be anything like Germany after WWI or Singapore's banana money after WWII, the end result is not great. We are going to see a lot of meaningless millionaires.

I just found a good description of what it means to be a millionaire from my favourite encyclopedia.

From Wikipedia: A millionaire is an individual whose net worth or wealth is equal to or exceeds one million units of currency. It can also be a person who owns one million units of currency in a bank account or savings account. Depending on the currency, a certain level of prestige is associated with being a millionaire, which makes that amount of wealth a goal for some, and almost unattainable for others.

The story started in 2008 during the Lehman collapse. The US govt pulled out all the stops to save the global financial system. It printed and printed and printed money. It is often said, Bernanke is a student of the Great Depression. If he had to throw sacks of dollar bills out of the helicopter to encourage people to spend, he would do it. And he did, figuratively.

This lead to the debasement of the US dollar, the world reserve currency.

Now we are seeing it in Europe. While the political bickering stopped the 27 governments from carrying out its actions promptly, ultimately, back-stopping everything that can go wrong by printing is recognized as the way out.

Well, there is another painful path, which is to let parts of the system fail and start over, like Iceland. However, policy makers cannot risk that and thus we go back to the printing press. Anyways this path also leads to the collapse of the currencies involved.

China had done its part with the 4 trillion stimulus although the effect on the yuan is less visible due to the peg. Most of it ended up in shadow banking and also the foreign reserves.

The Swiss came out with a bang with its unlimited intervention to keep the Swiss franc competitive.

The British more or less didn't have to do anything while the market sells its pound to historical lows.

The last major currency holding out is the Yen. But with its Government debt to GDP at 200%, higher than Greece, Italy and Spain, it might just be a matter of time before the yen implodes. Meanwhile, they are doing some stealth intervention.

What about the Singapore dollar? Our Govt has always maintained that we need the SGD to remain strong in order to offset inflation.

But there is a limit to how strong SGD can get, if not, our exports will crumble, or worse: we might give the Chinese or global HNWI (High Net Worth Idiots Individuals) the impression that Singapore's property is the safest haven in the world and the SGD can never depreciate. ie all the more reason they push up the red-hot property sector. This will lead to more unhappy Singaporeans and bring about the end of the PAP regime. So that's a no-no.

So basically all global currencies are going into competitive devaluation, what this means is inflation, or worse stagflation - inflation without real growth.

Actually, the story didn't start in 2008. The prequel was when Alan Greenspan took over as Fed Chairman in 1987. And for the next 20 years he re-engineered growth of the global economy into a one that doesn't go through normal business cycles of boom and bust but rather grow in a 45 degree straight line for more or less 20 years.

This has a drastic impact on inflation longer term but the effects were not felt for the most part of the last 2 decades. The true inflation is also masked by obscure methods of calculating inflation like adjusting for productivity or quality. For example a laptop bought this year at the same price as last year is counted as -50% in price (bcos the CPU speed doubled), imagine the impact on inflation with a portion of the 350 items counted like that!

All-in-all, what these means is that money is worth less, much much less than it was 20 years ago. Long term inflation as stated in textbooks is always roughly 2-3% per year. But I would say that the true inflation over the last 20 years might be closer to 5-6%.

In the last 3-4 years, inflation basically went stratospheric, in Singapore it is 5-6%, but again, the true rate might be double of that at 10-12% or even more. Just roughly speaking, taxi prices when from $15 for airport to town, to $30 now, with peak surcharge and airport surcharge and ERP and another couple more dollars if you suay suay ganna the premium cabs like the black Chrysler.

That is roughly over the span of the last 5 years, so that's 100% inflation over 5 years - ie 20% per year.

With that in mind, 6% inflation for the last 16 years, and 12% for the last 4 yrs.
That means that 100 dollars 20 years ago, is probably worth like 25 dollars today.
This also means that a millionaire today only has 1/4 of the true net worth or spending power compared to a millionaire 20 years ago.

In a capitalist society like Singapore where aspirations of financial freedom, millionaire by age thirty-five are abound, the implications are profound. Who wants to be a millionaire? Sorry, it's actually who wants to be a $250k-aire?

The truth is, being a millionaire is no longer enough. A millionaire today is not even half of what it was.

A millionaire tomorrow is basically meaningless.

It means you can probably buy a HDB flat (which would have taken up 70% of that amount) and live happily for like 5 years. Then inflation catches up and you realize that a proper restaurant meal costs $150 (today it's about $60 today for a family of four), your car cost $200k and your insurance can cover your taxi fare to the hospital ONLY.

Even if you don't count the first property (which is traditionally the way to determine a true millionaire, ie not counting the first property), it's still pretty meaningless. Bcos a millionaire definitely cannot buy a 2nd property anywhere in Sg and the same food, transport, medical inflation would destroy wealth faster than you can say "final answer".

So, who wants to be a millionaire?