The annual dividend list is out! As per last year, restricting the list to just Singapore can only yield a handful of names, hence it's more worthwhile to see things from a global perspective. The criteria for the screen had not been change for years except minor tweaks. Here's the first 20 names:
2016 Dividend List - Part 1
There are two Singapore names in the list: Yangzijiang and UMS. Yangzijiang is a shipbuilder which unfortunately is stuck in a bad part of the shipping industry which would take years to unravel i.e. low probability of making good money relying on fundamental analysis. It might worth a trade but definitely not a moat company that value investors would buy and hold. On UMS, this stock started appearing in 2014 and its financials do look pretty good. It had been generating steady FCF since 2010 and currently trades at an impressive 12% FCF yield. Alas, there were also stories about the management which in this post serves to to flag out another important point - not to invest in companies with corporate governance issues.
One of the most fundamental principles in investing and perhaps in life is actually about integrity or trust. In the case of investing, it would be trusting the accounts, in life, it is about integrity. Sometimes, this is so fundamental that it is often overlooked and we get into big trouble because of it, like trusting a "friend" with money and never seeing the money or the "friend" again. In fact, because integrity is not 100% most of the time, we setup legal systems to deal with it. So if the accounts cannot be trusted, what's there to analyse? How do we apply fundamental value investing in such situations? The answer is we cannot, so when there is a reasonable doubt that the accounts or the management cannot be trusted, we are better off not looking.
Having said that, it's impossible to say if UMS is that bad, it's just one or two stories told in the market. There are more clear cut poorly accounted companies out there, some trading at multi-billion market caps. Sometimes, it takes years to figure things out. Sometimes even if it's figured out, the share price could pop! Re: Herbalife. The SEC ruled that it wasn't conducting its business correctly, but stop short of saying it's a Ponzi scheme and the stock pop! Such is investing, you can make money when you are wrong and lose money when you are right!
Alanis Morissette's hit song really comes to mind!
It's like rain on your wedding day
and good advice that you didn't take
and isn't it all ironic
Ok, back to investing, stock ideas and the dividend list, sadly the first part of this year's list didn't really give any good ideas. What stood out were the number of IT has-beens or energy related names which unfortunately would not be a good place to start. Would Cisco come back? How about a Chinese utility company? Not too exciting.
If someone put a gun to my head and ask for one name, then perhaps I would suggest Michelin. This is not a high conviction idea. Again tires are pretty much old economy, and nothing to shout about. With self-driving cars and Ubers, the world view is perhaps one of "Who needs to change tires?" However, as long as cars don't fly, I believe tires will sell. Also a significant part of tire makers' earnings actually come from performance tires that we don't see as passenger car drivers and laypersons. These are tires that are used in aerospace, trucks, mining, construction etc. These had grown well over time and Michelin had been the dominant player in these are markets, alongside Bridgestone.
Michelin long term share price chart
Michelin's long term share price says as much. The chart above shows its stock price performance since 1990 and we see the familiar compounding chart. An investor could have bought the stock at 5 Euros in 1990 and made close to 18x today. Michelin generates 1-1.2bn Euros of Free Cashflow (FCF) today and trades at 16.7bn, i.e. giving investors a nice 6-7% FCF. The French are somehow simply just good at building brands. Who wouldn't love the Michelin Tyre man?
For some reason, to better its brand, it started its famous restaurant guide a hundred years ago and is now the Bible for food lovers worldwide. Singapore had the good fortune (some say bad) to actually see its version come out this year! For those who missed it, here's a portion of the Singapore's list (the well designed Michelin website does not make it easy to cut and paste the full list here)
Singapore's Michelin Guide (just one part)
So that's the first instalment of this year's dividend list with one important philosophy: find integrity, or not to invest in dubious companies, and one so-so stock idea: Michelin giving 6-7% FCF yield and a stolen food idea list (above) and as usual, we have all the past dividend list (below).
2015 Dividend List - Part 1
2014 Dividend List
2013 Dividend List - Part 2
2013 Dividend List - Part 1
2012 Dividend List
2011 Dividend List
2010 Dividend List
2009 Dividend List
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