Business Times - 01 Aug 2011
By MICHELLE TAN
THE earnings season is well underway and some investors may be smiling ahead of the upcoming National Day holiday as companies start to declare dividends.
Already, some dividend announcements have been made by certain real estate investment trusts (Reits) and it could be an opportune time for investors to come in and take a bite off the season's 'monetary offerings'.
However, investors do have to take note of the stock's ex-dividend date, as going in on, or after, that date would leave one no richer than when starting off, as that date marks the final cut-off to buy the stock in order to be entitled to the season's payout.
But remembering the date is probably the easy part with the advent of mobile calendars that offer timely reminders to even the most forgetful.
The bigger dilemma that continues to cloud the minds of investors time and again is none other than the decision of whether to buy a stock just before it goes ex-dividend, especially after finding out the period's dividend is surprisingly 'enticing'.
So why is this seemingly simple decision so mind-boggling for many?
Common sense tells investors that buying a stock just before it goes ex-dividend would be a preposterous idea as the dividend declared for the period would already be priced into the counter's open-market trading value once it is declared.
But does common sense always depict what happens in reality? Perhaps not.
In an attempt to shed some light on the notion that dividends are typically priced into a stock's price before it goes ex-dividend, we took a basket of Reits that commit to quarterly payouts and plotted their net positions on each constituent's respective ex-dividend dates across each quarter since 2006.
Taking the closing price of the stock on the ex-dividend date, minus the price on the day prior, before adding back the declared dividend for the period, it was found that the majority of the basket tended to yield positive net positions on their ex-dividend dates for the past five years, debunking the myth behind the 'fateful' day.
In fact, at least half of the Reit basket closed in a positive net position for approximately 76 per cent of all the quarters since 2006.
As such, it might not always hold true that one would be at the losing end if he invests in dividend counters after the period's 'token' has been declared.
Having said that, the conclusion was arrived at assuming all the companies in the basket did not announce any material event that could trigger an upsurge or dip in share price.
But nonetheless, the findings should warrant some thought.
Instead of planting funds into a dividend stock waiting for the respective payouts each season, one could invest his money elsewhere and still take a position in the counter at the eleventh hour and stand a chance to grab a piece of the cake along with other loyal shareholders that have been clinging on to the counter over the long term, thus losing out in terms of opportunity cost.
As such, it seems that one could potentially have his cake and eat it too after all.
Showing posts with label Dividend Stocks. Show all posts
Showing posts with label Dividend Stocks. Show all posts
Monday, August 1, 2011
Monday, July 4, 2011
Dividend stocks: quality counts too
Business Times
By MICHELLE TAN
4 July 2011
THERE has been a big buzz around dividend stocks since the last global financial meltdown as investors and funds start to see the importance of establishing a regular income source, especially when the going gets tough.
Moreover, with Singapore's population demographics reflecting a fast ageing population, dividend stocks also serve as an avenue to generate income to fund retirement especially for investors with weaker saving habits. However, are dividend stocks really such a god-send, or have they been over-hyped by financial media?
In general, analysts and investors ascribe a lower risk and volatility profile to dividend stocks due to their ability to generate regular streams of income that help bolster the ill-effects of a potential downturn.
But does this mean that dividend stocks are less likely than their lesser yielding peers to see price upswings due to their less volatile nature?
As a simple illustration, should one compare the basket of 30 Straits Times Index (STI) constituents with a basket of 30 dividend stocks, findings show that though both portfolios generated positive year-on-year price returns, the former reflected a higher annual return of 13.8 per cent as opposed to the 9.6 per cent registered by the dividend stock portfolio.
As such, based on the findings, it seems that dividend stocks tend to experience lower capital appreciation when compared to index stocks.
Having said that, the STI basket is made up of blue-chip quality counters that tend to be highly favoured by both institutions and layman investors alike.
Perhaps, if the comparison was drawn to a basket of lower cap counters, findings might have shown otherwise.
Now coming from a dividend perspective, dividend stocks triumphed over the STI basket with the former having a forecast consensus dividend yield average of 6.2 per cent in FY11 and 6.5 per cent in FY12 as compared to the latter's 3 per cent and 3.3 per cent for the respective financial years.
The findings are not surprising though investors should bear in mind that the STI portfolio has some dividend stocks, which would have given a slight lift to the basket's average yield.
Should the basket exclude dividend stocks entirely, the average dividend yield would have been even lower.
More pertinently, the dividend stock portfolio, unlike the STI one, is able to outstrip domestic inflation rates, which is cited as a key worry for investors today.
As such, investors who are unable to buy commodities like physical gold or property to hedge against inflation could perhaps turn to dividend stocks as their answer to a cost-efficient inflationary hedge.
But there are no fool-proof investments in this world. Just like any equity, dividend stocks are still susceptible to industry recessions and other sector-specific woes.
In fact, during the last recession, many dividend stocks such as real estate investment trusts (Reits) were not spared from the falling knife.
Admittedly, there was sunlight after the rain for investors that had the financial muscle to tide through the rough patch.
But for investors who were retrenched and needed the funds, liquidating dividend stocks such as Reits - and other non-dividend stocks - back then would have severely decimated their wealth.
All that said, it is an undeniable fact that all boats sink when the tide falls. But one of the better known ways to break the fall is to diversify.
After all, putting all your eggs in one basket is never a wise move, especially from a capital protection standpoint. And this holds true even for stocks with a more conservative risk profile, such as dividend stocks.
The key point to drive home is that whether one is planning for his retirement or is merely seeking extra side income, quality is still of paramount importance.
A high yielding stock does not always mean it is a good stock. Though a stock with sound fundamentals and with attractive yields to boot would be a wise investment option.
To print enlarge image:
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD14XhaoxHPUDa9rCfKHwOdCgLl_JQkc4u0NVeo6qJedzA6e8d5-zumGmIG7iIG76TLUDjPkMlP3w3REecazB8-kVJwFk6e2G_CgWNMkAQXMBQXghsLNyAAaASgOm-_f8CfnOX2o66akOx/s320/dividend+stocks.jpg
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1S1ENZgXLEJjSpbaxJ798VDQmqBma5QbASCJDbYMIEMEz1z62ss4yKu_oeeU2suoott05W5_8MXjHKPm08eliIVfP6UXRKZJBkJIfNqoyDVpPvaEgXNQvuQaPIWv8BUYvdJurdoapceua/s320/sticonst5.jpg
By MICHELLE TAN
4 July 2011
THERE has been a big buzz around dividend stocks since the last global financial meltdown as investors and funds start to see the importance of establishing a regular income source, especially when the going gets tough.
Moreover, with Singapore's population demographics reflecting a fast ageing population, dividend stocks also serve as an avenue to generate income to fund retirement especially for investors with weaker saving habits. However, are dividend stocks really such a god-send, or have they been over-hyped by financial media?
In general, analysts and investors ascribe a lower risk and volatility profile to dividend stocks due to their ability to generate regular streams of income that help bolster the ill-effects of a potential downturn.
But does this mean that dividend stocks are less likely than their lesser yielding peers to see price upswings due to their less volatile nature?
As a simple illustration, should one compare the basket of 30 Straits Times Index (STI) constituents with a basket of 30 dividend stocks, findings show that though both portfolios generated positive year-on-year price returns, the former reflected a higher annual return of 13.8 per cent as opposed to the 9.6 per cent registered by the dividend stock portfolio.
As such, based on the findings, it seems that dividend stocks tend to experience lower capital appreciation when compared to index stocks.
Having said that, the STI basket is made up of blue-chip quality counters that tend to be highly favoured by both institutions and layman investors alike.
Perhaps, if the comparison was drawn to a basket of lower cap counters, findings might have shown otherwise.
Now coming from a dividend perspective, dividend stocks triumphed over the STI basket with the former having a forecast consensus dividend yield average of 6.2 per cent in FY11 and 6.5 per cent in FY12 as compared to the latter's 3 per cent and 3.3 per cent for the respective financial years.
The findings are not surprising though investors should bear in mind that the STI portfolio has some dividend stocks, which would have given a slight lift to the basket's average yield.
Should the basket exclude dividend stocks entirely, the average dividend yield would have been even lower.
More pertinently, the dividend stock portfolio, unlike the STI one, is able to outstrip domestic inflation rates, which is cited as a key worry for investors today.
As such, investors who are unable to buy commodities like physical gold or property to hedge against inflation could perhaps turn to dividend stocks as their answer to a cost-efficient inflationary hedge.
But there are no fool-proof investments in this world. Just like any equity, dividend stocks are still susceptible to industry recessions and other sector-specific woes.
In fact, during the last recession, many dividend stocks such as real estate investment trusts (Reits) were not spared from the falling knife.
Admittedly, there was sunlight after the rain for investors that had the financial muscle to tide through the rough patch.
But for investors who were retrenched and needed the funds, liquidating dividend stocks such as Reits - and other non-dividend stocks - back then would have severely decimated their wealth.
All that said, it is an undeniable fact that all boats sink when the tide falls. But one of the better known ways to break the fall is to diversify.
After all, putting all your eggs in one basket is never a wise move, especially from a capital protection standpoint. And this holds true even for stocks with a more conservative risk profile, such as dividend stocks.
The key point to drive home is that whether one is planning for his retirement or is merely seeking extra side income, quality is still of paramount importance.
A high yielding stock does not always mean it is a good stock. Though a stock with sound fundamentals and with attractive yields to boot would be a wise investment option.
To print enlarge image:
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjD14XhaoxHPUDa9rCfKHwOdCgLl_JQkc4u0NVeo6qJedzA6e8d5-zumGmIG7iIG76TLUDjPkMlP3w3REecazB8-kVJwFk6e2G_CgWNMkAQXMBQXghsLNyAAaASgOm-_f8CfnOX2o66akOx/s320/dividend+stocks.jpg
https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi1S1ENZgXLEJjSpbaxJ798VDQmqBma5QbASCJDbYMIEMEz1z62ss4yKu_oeeU2suoott05W5_8MXjHKPm08eliIVfP6UXRKZJBkJIfNqoyDVpPvaEgXNQvuQaPIWv8BUYvdJurdoapceua/s320/sticonst5.jpg
Friday, March 4, 2011
Choosing best high yield dividend stocks for your portfolio
Posted by Drizzt
March 4, 2011
I read a good piece on high yield investing over the weekend on The Edge. Personal Wealth featured Bruno Lippens of Pictet Asset Management,which is one of the world’s best performing high-dividend funds.
The fund focus on investment opportunities with predictable but stable cash flows while limiting volatility.
I find that Bruno highlighted all the good opinions on how to structure your dividend portfolio
Does not go for 10% high yield stocks. “They are probably in real estate, financial services or other very cyclical sectors” “What we strive for is not just dividends but a stable flow of dividends over a long period”
Studies show that companies that consistently pay higher dividends over a period of time tend to outperform those that pay very little or no dividends.
Global high yield infrastructure investments have tended to outperform when dividend yields exceed bond yields. “What we like about these companies is that you don’t have to be a genius to predict how they perform – Whether you are headed for double-digit inflation, a sharp recession or are in a midst of a slow recovery.”
Dislikes: financial services companies, business trusts, REITs and blue chip companies vulnerable to business cycles. Purchase companies that don’t swing much even during recession.
Likes: Utilities, Telecoms, toll roads, independent power plants, waste management and pipelines. They are not cyclical or less cyclical and don’t face much competition.
How dividend stocks will thrive in inflationary environment – “The case for investing in a high-dividend fund right now is simple-you get better yield than you might get from a similar fixed income fund with similar risks.” “If inflation goes higher, our investee companies will make more money and pay out higher dividends”
His fund is heavy on regulated utilities that are able to raise tariffs as their costs go up. The fund managers did a study on high inflation 1970s. “Because of all the inflation protection built into their business models, their tariffs go up, their revenues go higher, their cash flow is bigger and their nominal dividend is higher.”
Over the long term, dividends to them matter more than stock buy backs.
Currently they are looking into pipelines, utilities and water stocks
They don’t think telecom stocks are so yesterday. “There are several drivers in the telecom space, particularly mobile, which are doing well on the back of the boom in smartphones such as iPhones and tablets such as iPads”
The next opportunity may be water infrastructure.
They are not into Hutchison Whampoa’s HPH Trust. “If we were to find a port in a regulated environment where there was a lot of visibility on how the traffic goes throughout the cycle and it had a very stable and predictable cashflow, we might look at it” “But ports are a cyclical business. During a recession, port traffic can fall off a cliff.”
Some of their biggest holdings are Centrica, Southern Co and Vodafone Group.
Their Asian biggest holding is China Mobile. “It has a predictable cash flow, it is growing, it is committed to returning cash to its shareholders and ability to raise dividends”
The only company in Singapore they wanted to put money into was Singtel. “I am a little disappointed with SingTel’s unwillingness to commit to a dividend policy” “Unless we have an assurance that the company is committed to return cash through dividends, we won’t invest in it, no matter how good its earnings or fundamentals”
That was a particularly interesting mentioned of dividend stocks in Singapore! So many and they are only interested in probably 2 listed here which is Singtel and China Mobile ADR.
This could give local investors a good hint where to park their money if they are looking for low volatility and growing dividends.
March 4, 2011
I read a good piece on high yield investing over the weekend on The Edge. Personal Wealth featured Bruno Lippens of Pictet Asset Management,which is one of the world’s best performing high-dividend funds.
The fund focus on investment opportunities with predictable but stable cash flows while limiting volatility.
I find that Bruno highlighted all the good opinions on how to structure your dividend portfolio
Does not go for 10% high yield stocks. “They are probably in real estate, financial services or other very cyclical sectors” “What we strive for is not just dividends but a stable flow of dividends over a long period”
Studies show that companies that consistently pay higher dividends over a period of time tend to outperform those that pay very little or no dividends.
Global high yield infrastructure investments have tended to outperform when dividend yields exceed bond yields. “What we like about these companies is that you don’t have to be a genius to predict how they perform – Whether you are headed for double-digit inflation, a sharp recession or are in a midst of a slow recovery.”
Dislikes: financial services companies, business trusts, REITs and blue chip companies vulnerable to business cycles. Purchase companies that don’t swing much even during recession.
Likes: Utilities, Telecoms, toll roads, independent power plants, waste management and pipelines. They are not cyclical or less cyclical and don’t face much competition.
How dividend stocks will thrive in inflationary environment – “The case for investing in a high-dividend fund right now is simple-you get better yield than you might get from a similar fixed income fund with similar risks.” “If inflation goes higher, our investee companies will make more money and pay out higher dividends”
His fund is heavy on regulated utilities that are able to raise tariffs as their costs go up. The fund managers did a study on high inflation 1970s. “Because of all the inflation protection built into their business models, their tariffs go up, their revenues go higher, their cash flow is bigger and their nominal dividend is higher.”
Over the long term, dividends to them matter more than stock buy backs.
Currently they are looking into pipelines, utilities and water stocks
They don’t think telecom stocks are so yesterday. “There are several drivers in the telecom space, particularly mobile, which are doing well on the back of the boom in smartphones such as iPhones and tablets such as iPads”
The next opportunity may be water infrastructure.
They are not into Hutchison Whampoa’s HPH Trust. “If we were to find a port in a regulated environment where there was a lot of visibility on how the traffic goes throughout the cycle and it had a very stable and predictable cashflow, we might look at it” “But ports are a cyclical business. During a recession, port traffic can fall off a cliff.”
Some of their biggest holdings are Centrica, Southern Co and Vodafone Group.
Their Asian biggest holding is China Mobile. “It has a predictable cash flow, it is growing, it is committed to returning cash to its shareholders and ability to raise dividends”
The only company in Singapore they wanted to put money into was Singtel. “I am a little disappointed with SingTel’s unwillingness to commit to a dividend policy” “Unless we have an assurance that the company is committed to return cash through dividends, we won’t invest in it, no matter how good its earnings or fundamentals”
That was a particularly interesting mentioned of dividend stocks in Singapore! So many and they are only interested in probably 2 listed here which is Singtel and China Mobile ADR.
This could give local investors a good hint where to park their money if they are looking for low volatility and growing dividends.
Monday, October 25, 2010
Seeking high dividend stocks in Asian markets
This is not just a short-term tactical strategy but one which can also pay off in the long run.
Mon, Oct 25, 2010
The Business Times
By Eric Sandlund
INVESTORS probably don't need reminding of how low deposit rates are.
In Singapore, the average savings rate is 0.14 per cent while 12-month fixed deposits are offering only 0.47 per cent. And it is likely that interest rates will stay at these low levels for a while longer.
A lot depends on what happens in the US. The US economic recovery has been a wobbly one and the US Federal Reserve has signalled that it may embark on more 'quantitative easing' to support the economy.
Quantitative easing encompasses a range of possible policy actions but its main objective is to push down interest rates.
Singapore interest rates are influenced by the actions of the Fed and very low interest rates in the US mean very low interest rates here.
If investors take the current 3 per cent inflation into account, real interest rates are not just low but in fact negative. Not surprisingly, holding cash is unattractive and investors want alternatives.
Related stories:
» 5 things to consider with today's low interest rates
» 3 ways to avoid investing with the herd
An environment flushed with so much liquidity should in theory benefit equity markets but investing in equities this year has been challenging.
Investors have had to cope with large gyrations in the market as sentiment has been switching between 'Risk On' and 'Risk Off'.
Range bound
UBS is not in the 'double-dip' camp but we expect equity markets to be range bound until there are clear signs that the US economy is not entering another recession.
We remain positive on Asia's economic prospects and believe that the region's superior growth and earnings will in due course be reflected in equity prices.
However, until investors are ready to reward growth, we have tactically adopted a defensive strategy of seeking high dividend stocks in our Asian equity positioning.
Dividends are not traditionally a focus of investors in Asia. After all, investors buy Asian equities for growth.
During bull markets, the capital gains are sizeable and dividends are dwarfed.
In a trendless market, dividends are, however, attracting more attention from investors.
As at the end of September this year, the MSCI Singapore index was up 7.2 per cent , with a capital return of 4.5 per cent and dividends contributing 2.7 per cent.
Investing in stocks for their dividends is in fact not just a short-term tactical strategy but one which can also pay off in the long run.
What many investors probably don't realise is how much dividends have contributed to total equity returns over time.
Take the last 10 years. For Singapore, dividends have contributed a 66 per cent of total equity returns while in Hong Kong, the number was even higher, over 80 per cent. For the region as a whole, dividends have accounted for over 40 per cent of total returns in the last 10 years.
Dividends matter so much in Asia because of the high level of volatility of Asian equity markets. Market declines, when they occur, can be so deep that large portions of previous capital gains are often wiped out.
Any investment strategy comes with risk. Buying a stock for its expected dividend payout means taking a risk that the dividends do indeed materialise and cash is actually paid back to shareholders. Dividends are a function of earnings. If earnings decline, dividends will decline.
A company can also choose to do a number of things with its cash. It can reduce its debt level, it can embark on capital spending, it can engage in mergers & acquisitions, or it can pay dividends. A company which cuts its dividends will not infrequently see its share price punished by the market.
A successful dividend strategy really requires two sets of capabilities.
First, for efficiency, you need a quantitative tool to screen for high dividend stocks from the rapidly expanding Asian equity universe.
Equally important is the ability to select the companies which will not disappoint in their dividend payouts. That's the qualitative aspect - experience, skill and hard work.
Diversification
An added risk with a dividend strategy is that high dividend stocks tend to be concentrated in certain markets and certain sectors. These would typically be the more developed Asian markets of Singapore, Hong Kong and Taiwan and the more defensive sectors such as telecoms and utilities. Like any other portfolio, a dividend focused portfolio should be sufficiently diversified, to balance risk with reward.
Although a dividend strategy is primarily seen as a defensive strategy, it is nevertheless possible for skilled managers to generate alpha over the course of the full cycle and outperform the broader market.
This is because high dividends and growth are not mutually exclusive in Asia. A company can offer both sustainable dividends and capital gains if it does not blindly pursue growth but adopts business strategies which are sustainable. These, you could say, are the true blue chips in Asia.
The writer is head of UBS Investment Management APAC
Mon, Oct 25, 2010
The Business Times
By Eric Sandlund
INVESTORS probably don't need reminding of how low deposit rates are.
In Singapore, the average savings rate is 0.14 per cent while 12-month fixed deposits are offering only 0.47 per cent. And it is likely that interest rates will stay at these low levels for a while longer.
A lot depends on what happens in the US. The US economic recovery has been a wobbly one and the US Federal Reserve has signalled that it may embark on more 'quantitative easing' to support the economy.
Quantitative easing encompasses a range of possible policy actions but its main objective is to push down interest rates.
Singapore interest rates are influenced by the actions of the Fed and very low interest rates in the US mean very low interest rates here.
If investors take the current 3 per cent inflation into account, real interest rates are not just low but in fact negative. Not surprisingly, holding cash is unattractive and investors want alternatives.
Related stories:
» 5 things to consider with today's low interest rates
» 3 ways to avoid investing with the herd
An environment flushed with so much liquidity should in theory benefit equity markets but investing in equities this year has been challenging.
Investors have had to cope with large gyrations in the market as sentiment has been switching between 'Risk On' and 'Risk Off'.
Range bound
UBS is not in the 'double-dip' camp but we expect equity markets to be range bound until there are clear signs that the US economy is not entering another recession.
We remain positive on Asia's economic prospects and believe that the region's superior growth and earnings will in due course be reflected in equity prices.
However, until investors are ready to reward growth, we have tactically adopted a defensive strategy of seeking high dividend stocks in our Asian equity positioning.
Dividends are not traditionally a focus of investors in Asia. After all, investors buy Asian equities for growth.
During bull markets, the capital gains are sizeable and dividends are dwarfed.
In a trendless market, dividends are, however, attracting more attention from investors.
As at the end of September this year, the MSCI Singapore index was up 7.2 per cent , with a capital return of 4.5 per cent and dividends contributing 2.7 per cent.
Investing in stocks for their dividends is in fact not just a short-term tactical strategy but one which can also pay off in the long run.
What many investors probably don't realise is how much dividends have contributed to total equity returns over time.
Take the last 10 years. For Singapore, dividends have contributed a 66 per cent of total equity returns while in Hong Kong, the number was even higher, over 80 per cent. For the region as a whole, dividends have accounted for over 40 per cent of total returns in the last 10 years.
Dividends matter so much in Asia because of the high level of volatility of Asian equity markets. Market declines, when they occur, can be so deep that large portions of previous capital gains are often wiped out.
Any investment strategy comes with risk. Buying a stock for its expected dividend payout means taking a risk that the dividends do indeed materialise and cash is actually paid back to shareholders. Dividends are a function of earnings. If earnings decline, dividends will decline.
A company can also choose to do a number of things with its cash. It can reduce its debt level, it can embark on capital spending, it can engage in mergers & acquisitions, or it can pay dividends. A company which cuts its dividends will not infrequently see its share price punished by the market.
A successful dividend strategy really requires two sets of capabilities.
First, for efficiency, you need a quantitative tool to screen for high dividend stocks from the rapidly expanding Asian equity universe.
Equally important is the ability to select the companies which will not disappoint in their dividend payouts. That's the qualitative aspect - experience, skill and hard work.
Diversification
An added risk with a dividend strategy is that high dividend stocks tend to be concentrated in certain markets and certain sectors. These would typically be the more developed Asian markets of Singapore, Hong Kong and Taiwan and the more defensive sectors such as telecoms and utilities. Like any other portfolio, a dividend focused portfolio should be sufficiently diversified, to balance risk with reward.
Although a dividend strategy is primarily seen as a defensive strategy, it is nevertheless possible for skilled managers to generate alpha over the course of the full cycle and outperform the broader market.
This is because high dividends and growth are not mutually exclusive in Asia. A company can offer both sustainable dividends and capital gains if it does not blindly pursue growth but adopts business strategies which are sustainable. These, you could say, are the true blue chips in Asia.
The writer is head of UBS Investment Management APAC
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