Friday, May 19, 2023

2023 Dividend List

The wait is over. Today we will talk about *drumrolls* the 2023 Dividend List. This list has consistently generated the most popular posts on this infosite over the years. I started using Poems' simple dividend screen a few years ago. It allows adjustment for only 8 factors: ROE, ROA, Operating Margin, Dividend Yield, PE, PB, Current Ratio and Debt/Equity. While crude, it worked and we discussed good ideas in the years past (the full lists at the end of this post). This year, I came up with a 8818 4D winning formula to screen and would like to share the results. 

The above shows what 8818 is about. ROE > 8%, Operating Margin > 8% and PE < 18x. Dividend is no longer used as a criteria so it has become a misnomer to say this is a dividend list. But since Poems will always show the dividend yield, we can still see it as a reference and surprisingly, all the stocks featured today pays dividends. Although it doesn't really make any sense today to buy anything for 4% dividend since we get that risk-free buying Singapore T-bills. However, if it is a name with strong growth but still gives 4-5% dividend, then it's a steal. Buy, buy, buy!

For the Singapore market, I have cut off the market cap at SGD100m and we have 77 names. The last name cuts off at market cap of SGD1.5bn and honestly, I have also avoided small caps because the risk of seeing that investment going zero is way too high for me to stomach. I have discussed this point in Lessons Learnt from My 4 Biggest Losses. As such, the screenshot shows the top 30 names, the good blue chips on SGX sorted by market cap. We see the banks, REITs, Thai Beverage, Jardine Cycle and Carriage, Yangzijiang, Property names and Venture, Singapore's answer to Foxconn, albeit in a very small way, led by its founder Wong Ngit Liong. The following shows Venture's share price.

While it does not show the usual compounding graph, we can still see that Venture has created some value in the last 10 years after a long stagnation from the early 2000s to 2016-17. Contract manufacturing is a difficult business and hats off to Mr Wong and his team for being able to reinvent themselves, bringing the share price to $30 at one point. Venture went into niche contract manufacturing for MNCs by providing Singapore's branding for quality, process and timeliness and made a killing there.

But, let's move on from Singapore. In the next screen, I used the same 8818 (i.e. >8% ROE, >8% OPM and <18x PE) for NYSE, Nasdaq and Amex with the market cap cut off at USD100bn. Unfortunately, that is the quantum difference between our Little Red Dot and the World - USD100bn vs SGD100m as the cut-off in market cap. *Sigh* Anyways, the following shows some of the biggest names in the  world today:

I would note that TSMC is the most interesting name but it also comes with the most dangerous risk: China invading Taiwan. If that happens though, everything will be falling apart, so not sure which is worse, owning a diversified portfolio with TSMC or owning a lot of stocks in general that will see 20-30% drawdown if war breaks out. I don't have a good answer and that is why I have also advocated buying physical gold. In the middle of WWIII, all your stocks and money in the bank account may not be worth much, but physical gold will get you food and petrol in your $100k COE car.

The last screen is the same 8818 criteria for LSE listed names. I would highlight that BHP and Unilever which appeared in both the London and US screens are good compounders. The chart for Unilever below shows the nice exponential curve as most compounders' long term share price chart shows. Different from the Venture one right?

Interestingly, we are also seeing many stocks trading below 1x PBR (e.g. HSBC and British American Tobacco) that has good ROEs and not necessarily basket cases. During the growth era from 2010 to 2022, this couldn't happen. Perhaps we are truly in a new value era. Long Live Value!

As usual, here's the past lists:

2020 Dividend List
2019 Dividend List
2018 Dividend List - Part 4
2018 Dividend List - Part 3
2018 Dividend List - Part 2
2018 Dividend List - Part 1
2017 Oct Dividend List - Part 2
2017 Oct Dividend List - Part 1

Huat Ah!

Friday, May 05, 2023

Thoughts #31: Investment Advice for Friends

As self-proclaimed investment gurus, friends tend to seek us out for investment advice and we tend to give freely, without contemplating the consequences. Most of the time, we share ideas that we are thinking of OR ideas that we already own and as conversations with friends go, there is no in-depth discussion and exact instructions are not provided. For example, a typical conversation will be:

Friend: "Hey, any stock lobang (good investment opportunity)"

Investor: "Yeah, check out Sembcorp Marine,  I bought already."

Friend: "Why is it good?"

Investor: "Energy is in demand, now oil price so high. Sembcorp will benefit."

Friend: "Oh yes, that is true, any risk?"

Investor: "They always need to put in a lot of capex, basically capital expenditure to build rigs and the industry is highly cyclical, so some competitors go bust. But no worries, Keppel will buy them if anything goes wrong."

Friend: "Ok, ok, I go buy tomorrow."

There are a few issues right here. There is no entry price, no target price and as such we do not know when to exit. Also, what is the size to commensurate the risk involved? These important points are all not spelt out. So when things go wrong, the investor sells at a loss and recommends that the friend do so, he or she may not follow because psychologically, loss-aversion is at work. Most people find it very hard to cut loss. Even when things go right, it is time to take profit, greed takes over and when the investor has sold, sometimes friends do not want to sell also. 

Such is the difficulty of providing investment advice on a casual basis.

Well, most friends are understanding and they know, it is always caveat emptor. You cannot fault your investor friend for providing advice just as you cannot fault your makan guru (foodie) friend for recommending you to his favorite restaurant which may not be to your liking. Of course, not all friends are like that.

To continue to hypothetical situation above:

Friend: "Hey Sembcorp died! What happened?"

Investor: "Well, it is highly cyclical, they did a lot of capex in the wrong regions, so when things go wrong, I sold and asked you to sell. Did you sell?"

Friend: "But you said Keppel will buy them."

Investor: "Well they did merge in the end. But did not go too well for Sembcorp shareholders. That is why I sold. Why didn't you sell?"

Friend: "I was hoping can rebound. But now lost so much money. Thanks bro... Guess your stock tips are not too reliable."

Investor: "Sorry... can we still be friends? Can I buy you dinner?"

Over the years, I have come to realize that the negatives of providing investment advice outweighs the positive. If he is serious, maybe he should consider subscribing to my Substack and we can have real in-depth and robust discussions on the Substack platform with other like minded subscribers.

Alas, most people just want stock tips. Not to read a 15 minute deep dive note on Substack or anywhere else. Just gimme the get-rich-quick tip bro!

Well, to each its own, we can still be friends.

Huat Ah!