Tuesday, May 06, 2014

2014 High Dividend Stocks in Singapore

The annual dividend list is out!

This year's list produces only 18 names despite tweaking the factors multiple times. It goes to shows that the market continues to be expensive and it is hard to get as many gems as before. Again, we see the usual suspects: Elec & Eltek, CSE, Transpac, Boustead etc. 

2014 High Dividend Stocks in Singapore

As with previous years' lists, I used just a couple factors: ROE, Dividend Yield, Free Cashflow Yield and Operating Margin. The top 3 names gave amazing dividends. It should be one-off and unlikely to be sustainable. If CSE Global gave another 50% dividend this year, the stock price would go to zero

Some of these names have appeared many times since the list started in 2009. This is actually not a good thing. Yes, a long term investor would have earned the dividends over the years, some are quite good like 5-6%. Elec & Eltek now gives 11%! But other than the dividends, it provided little capital appreciation, which is likely to be the case going forward as well. Elec & Eltek, while the stock fluctuated between $1 to $5 over the past 20 years, the long term chart essentially showed that the intrinsic value of the company did not grow. So buying this stock was more like buying a risky bond that gives c.5% yield. 

This year's list didn't really have a lot of good candidates. SIA Engineering and SATS are still there. I would just reiterate that these two could be considered as the few true blue chips in Singapore.

One of my favourite names last year dropped out: Sembcorp Marine. Well it didn't do very well in the last 12 months, a time frame too short to determine anything though. Then again, this proved my annual message that this list is just a starting point. The heavy-lifting starts after you see this screen. After you decided to drill down on a name. You have to dig out the annual reports, read and re-read, talk to people, do some number crunching and then wait for the right price. Hard, hard work!

Okay, so what happened to Sembcorp Marine? Well, the firm cut its dividend, had some troubles at their shipyard and the business model is facing pressure both from competition and from its clients. However I remain confident that our stars (the other being Keppel) in this niche oil exploration industry will continue to shine. We have the expertise, experience and the endurance to compete. Building on these strengths we have a few competitive advantages including state-of-the-art repair shipyards for the biggest ships, possibly the only ones in the world. We are still very good at cost control and management. So we will survive! 

Majulah Singapura!

Having said that, the lesson learnt from buying Sembcorp Marine was this: no margin of safety. As Charlie Munger puts it. It is not simple. We can know all the right philosophy but to execute is a different matter. Smokers know they should not smoke and fat people know they should not eat fries but they can't help it. Similarly, to buy with sufficient margin of safety is not easy to achieve. Esp when the stock gave 5% yield, the business looked sound and solid and everyone said Buy! On hindsight, Sembcorp Marine would look like a safer buy at $3.50. I would be averaging down at that price.

As I have blogged about in "5 Things You Need to Know about Investing", the success rate for even the best investors is 60%. There will be 4 stocks that will lose money for every 10 that you buy. So no need to feel upset about losing money in a few stocks here and there. In the end, it's the portfolio that counts. And if you buy enough dividend names, over time the dividends will offset all the losses.

It is not unimaginable to live off dividends someday. Starting with $100,000, a dividend portfolio that gives 5% and grows 5% per year will become a $500,000 portfolio giving you $25,000 in dividends in about 33 years. So start early

Again here is the past lists:

1 comment:

  1. Hi,

    in your bloomberg screen, I could not see the column where it shows the FCF yield. Was that included as one of the parameters for your list?