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klooloola Member	08-Aug-2007 12:33        klooloola About Contact  Quote this Post!
x 0   x 0  Alert Admin	Some random notes. Singapore does not have a double taxation of dividends, thats why there is no excuse for not paying out excess money to investors. A 100% payout ratio is sometimes justified. Good companies can pay dividends and still grow  fast with minimal capital. Paying dividends does not impair them. Take SGX itself. SGX has more than doubled turnover in 5 years and last year paid .32 S$ in dividends out of .39S$ per share in profits.  It has a ROE of 50%. Source: shares investment no311. If you wish to reinvest dividends, you can go for a share dividend scheme, you will be given shares instead of dividends- useful for small dividend amounts where reinvesting would mean high transaction costs. So there is no need to go for either growth or dividends in Singapore,  I always demand  both. Have no position in SGX - my mistake.
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baseerahmed Master	08-Aug-2007 11:45        baseerahmed About Contact  Quote this Post!
x 0   x 0  Alert Admin	my personal view : these posts are a bit too long .... perhaps working adults do not have the time/luxury to read thru these long posts and come up with their own views .... already we are suffering from 'too much infromation ' (TMI) ...hahaha !
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tatrader Senior	08-Aug-2007 11:11        tatrader About Contact  Quote this Post!
x 0   x 0  Alert Admin	In response to Farmer, this is what i think although i am more of a trader than an investor   If i recall correctly, there are a few reasons an investor can buy stocks. 1) To buy value, similar to what warren buffet likes to do, he likes to buy good businesses at significant discounts 2) We also have Peter Lynch who likes to call this Dividend play, he will buy slow growth or no growth companies with great dividend, at reasonable prices and just collect the dividend. He ensures that the price he pays is lower than that of book value or establishes whether there is any hidden value in the assets of the company which, in the event of the company being liquidated will still yield him a profit 3) Turn arounds, Similar in a way to the first and second reason, its like Peter Lynch's purchase of Chrysler in the 1980s when Lee Iaccoca took over as CEO. He realised that the company was poised for a turn around (Chysler being a cyclical) and decided to buy the company as he felt it had growth potential. So at the end of the day, i guess investors should know why they are buying a stock and structure their portfolio accordingly.
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Farmer Master	08-Aug-2007 10:56        Farmer About Contact  Quote this Post! Style: Fundamental   Mood:
x 0   x 0  Alert Admin	Hi gentlemen, It's a pleasure to sometimes read a long posting which make sense even though you may not agree to all its content. But that is the whole purpose about the forum so that people can ask and share experience from each other. Its just pity that this subject only attract a few posters. One of the important reason why I'm buying/holding a particular stock  is : The ability of the company to consistently pay out good dividends(~5% or >) with respect to its share price over a long period of time. How about you guys, anything reasons to share?
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BusinessLike Senior	08-Aug-2007 09:39        BusinessLike About Contact  Quote this Post!
x 0   x 0  Alert Admin	Hi Littlemiss, Management of companies have to be assessed through time and events, and not a one time thing. A good way, e.g. in American Companies, will be to check their proxy statement as to what is the incentive and pay structure. In Singapore, there is less transparency with regards to the incentive structure. Incentive is important because it drives people to make decisions, some which are very bad, like you mentioned, a lousy acquisition just to boost short term earnings. However, the test is always this: what returns is the company making on incremental capital. A company can hardly fake ROE unless debt is going up and they are over-leveraging their balance sheet to boost ROE. Overtime, you got to check. Most times, destructive use of capital come in the form of acquisitions. When an acquisition takes place, it has to be announced. You can assess how smart these acquisitions are by looking at the price being paid, if shares are issued is management issuing undervalued shares which is value-destroying, or is the management diversifying into something they have absolutely no expertise in i.e. diworsification. It's good to be a cynic. It's your responsibility to question every business pitch that comes your way. Just remember you will only have slices of information to act upon. A good way will be to come learn the mental framework that has been introduced at last semester's E.y.E meeting: Good business, Good People, Good price, and learn to think in terms of scenarios and probabilities. Understanding the business is also essential. With so many shades of grey, thinking on with a one track mind can prove disastrous. The margin of safety will help you very much, and remember at some point, if you are comfortable with what you know, write down 3 reasons why you are buying the stock (for they will help you with sell decisions) and please then commit your finances to it. Remember: nothing ventured, nothing gained. Regards
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littlemiss Member	07-Aug-2007 21:34        littlemiss About Contact  Quote this Post!
x 0   x 0  Alert Admin	hi BusinessLike and all, i'm so glad you're all a part of this forum, and you guys are super active in it too.  just lookin at the time difference between each post certainly gets me riled up about this forum! anyway, if i'm reading this thread correctly, it seems like dividend payout isn't very indicative of the health / earning potential of a business.  businesses that pay out dividends aren't necessarily fantastic, neither are businesses that don't necessarily junk.  apart from probing into financial statements like what Farmer suggested, how else can you decide for yourself if a great company withholding dividends is doing something constructive with the money?  even if they claim they're investing in certain profitable projects to give shareholders a higher ROE, could we possibly ascertain that they're not channelling funds into something shareholders wouldn't be too pleased knowing? with so many doubts you'd probably think i'm a cynic.  and with that you'd be absolutely right.  i know being cynical probably aids in making better investing decisions (but then again there are so many other schools of thought on this) but is there such a thing as being too cynical such that it hampers decision-making in investing?  is there a preferred mindset when it comes to investing soundly?
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Farmer Master	07-Aug-2007 17:01        Farmer About Contact  Quote this Post! Style: Fundamental   Mood:
x 0   x 0  Alert Admin	Your last paragraph make sense...agreed! That's why as an investor, you need to probe further into its balance sheet, management, and so on.... for multiple years. And, the ability to consistently deliver decent divs is one important factors to determine whether its a good(not best) company or not. An equation is just isn't practical if it can't survive the test of time...ie the same investment over a period of different time will not give you the same return(it maybe be -ve return).   Lets call it a day!
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BusinessLike Senior	07-Aug-2007 16:41        BusinessLike About Contact  Quote this Post!
x 0   x 0  Alert Admin	The equation just tells you the two components of return. The time horizon or the culture that a person comes from should not affect how returns are being defined. This is going nowhere, Sir. If a person wants income, he should invest in bonds since dividends are not guaranteed unless you are a preferred shareholder. THis is not guaranteed either unless the company makes a profit. Ofcourse bonds are useless against inflation. One more argument against dividends is that some companies will pay out a dividend at all cost just to make shareholders happy, even at the expense of making necessary reinvestments, or worse, borrow to distribute.
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Farmer Master	07-Aug-2007 16:29        Farmer About Contact  Quote this Post! Style: Fundamental   Mood:
x 0   x 0  Alert Admin	One important missing factor in the equation is TIME. Can you differentiate between a young and an old investor's mindset? What about an American and Singaporean one? Well think about it!
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BusinessLike Senior	07-Aug-2007 16:10        BusinessLike About Contact  Quote this Post!
x 0   x 0  Alert Admin	Hi Soh Guan, I understand where you are coming from. Yet, I do not mean to say that a company that has to reinvest all its earnings to grow it is a good business. It is definitely true that I will select a company that does not have to reinvest all its profits just to grow. What I mean is that it can consistently retain its earnings and still make a high return on equity. If a company has to retain a major part of its profits to sustain operations, I think that is bad, but if the company has major opportunities to pour its profits into so that it can reap even higher returns on equity by solidifying its competitive position, I think there is nothing bad about that. We are fortunate in Singapore that dividends are not taxable. Investing in US stocks however, there are tax consequences. Again, Farmer, I think you are looking at it the wrong way. Other than tax, the principles of finance hold true in US and Singapore companies. Your thinking that just because one cannot find any dividend paying stock that outperforms the STI index and therefore dividends are great is not a solid argument. Again, I emphasize, that dividends are very popular in Singapore so I believe most managment capitulate and pay a dividend, even though it might not be the best policy. The returns equation focuses on where value generation is manifested. I believe that good decision frameworks are built upon good theory and I think this one is not bad at all. Could you elaborate on what factors might be missing? Perhaps the "Utility" of getting the dividend cheque? :P Haha. Just kidding.
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Farmer Master	07-Aug-2007 15:50        Farmer About Contact  Quote this Post! Style: Fundamental   Mood:
x 0   x 0  Alert Admin	Wah...You guys really understand WB & BM's strategies and read up quite a lot more than I do. "pei fu"! So you see, US and Local market are just different when you look at the subject for discussion. Same Question : Base on our stock market here in Singapore, can you name any great company that consistently outperform the STI index but doesn't pay out any dividends?  That's why divs is a great consideration when come to stock investment in Sg. Also, the equation : Returns = dividend yield + capital gain is only right in theory, in practice, there're much more factors involve to complete the formula.
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sohguanh Veteran	07-Aug-2007 15:50        sohguanh About Contact  Quote this Post!
x 0   x 0  Alert Admin	i go by klooloola view that dividend payout is important. my idea is simple. if i intend to hold on to a stock for very very long term of cuz i would like to see capital appreciation but if no dividends is paid out to me, all those years i am juz riding on paper profits. with periodic dividend payment given to me, it is like getting good interest income from investing in this stock long term. i believe alot of ppl tink like me and the concept of REIT and business trust are IPO in recent years in SGX. they are mandated by law to return a certain percentage income as dividend payment to shareholders. the immense takeup rate from retail investors speak of the strategy those shareholders adopt like me. to me if a company can reinvest their profits with limited capital to achieve good capital gain AND yet still can give decent dividends they are the really GOOD company with fantastic business potential. if a company need ALL the profits in order to expand their business, it means they are not that good enuff compared to a competitor who can do the same at less capital BUT still give dividends out to shareholders.  i am a dividend lover shareholder. no dividend stocks i DEFINITELY give them a miss :)
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ltvalue Senior	07-Aug-2007 15:30        ltvalue About Contact  Quote this Post!
x 0   x 0  Alert Admin	i believe that Buffett never did invest in Tech is largely because he defined his circle of competence to exclude tech. In his letters to shareholders, he said that he has no expertise predicting the future of tech, thus he will not invest in it. Bill Miller, an amazing 'value' investor has indeed bought stocks such as Ebay and Google. The 'preference', as questioned by Farmer, is answered by Miller as simply, to buy when there's a discrepancy between price and value. I agree with BusinessLike that the preference for dividend should be solely determined by the ability of management to invest it at above market return.
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BusinessLike Senior	07-Aug-2007 15:29        BusinessLike About Contact  Quote this Post!
x 0   x 0  Alert Admin	Hi Farmer, Warren Buffett never did invested in Tech Stocks simply because he knew he could not understand it better than anyone else. He had no idea where these company's competitive advantage will lie in the next 5, 10 or 20 years. Warren Buffett understands that risk come by not knowing what you are doing so he sticks with what he knows. Furthermore, Buffett never invests or does not invest in a company based on their dividend policy, growth rate or volatility in stock price. He looks for a business he likes that he can get at a great price. I prefer Old Economy stocks because, like Buffett, certainty that a business will not be replaced by a disruptive innovation is very important to me. I have no idea what the tech landscape is going to be in the next 5 to 10 years. I am trying to because like Bill Miller, I believe that Tech stocks are going to be important but got to be super on the ball and steady before thinking about investing in it. If I cannot read the tech landscape better than most, then I'll stick with what I know.
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Farmer Master	07-Aug-2007 15:19        Farmer About Contact  Quote this Post! Style: Fundamental   Mood:
x 0   x 0  Alert Admin	Let's compare the 2 extremes : Tech stock and Old economy stock. Normally, the former will pay less/no divs, high growth, volatile stock price....while the latter pay out decent divs, steady growth, relatively stable stock price. Which will you prefer?  Why the famous Warren Buffet never invested in the former?
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BusinessLike Senior	07-Aug-2007 14:51        BusinessLike About Contact  Quote this Post!
x 1   x 0  Alert Admin	Hi guys. Sorry about that. I had no idea we had to talk about things in a Singaporean Context. My exposure is mainly in the US so my slant. Sincere apologies. However, either way, I think the principles are the same, be it in the US or Singapore context. Furthermore, I think in Singapore, paying out a dividend is a popular thing. I think whether a company is labelled growth or value, it only makes sense to pay out a dividend if you cannot redeploy the retained earnings meaningfully to earn a greater return than the cost of retaining the it. It is most costly to the investor if he has to reinvest dividends, be it in terms of effort, time and money. It's just two arms of the return equation Returns = dividend yield + capital gain. Dividend does not create value. It is just a distribution of value. What you don't get as a result of dividend over time will come in the form of capital gains. So whether the company grows AND give dividends, I think is not the issue but if the management can find good use for retained earnings, it should not be paid out still. Just my 2 cents. I understand the comfort that dividends provide but perhaps it might not be for the best.
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klooloola Member	07-Aug-2007 14:35        klooloola About Contact  Quote this Post!
x 0   x 0  Alert Admin	The best companies grow AND pay a dividend. A good company may need huge investments to grow. But the the best companies do not need huge investments to grow. So why worry about growth and value when you can have both. as an example http://ir.asiaone.com/brightworld/doc/DBS_BWPM_070703.pdf With no long term debt and a 3% div yeild bright world continues to grow.  Disclosure:  I own stock in bright world.
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Farmer Master	07-Aug-2007 12:42        Farmer About Contact  Quote this Post! Style: Fundamental   Mood:
x 0   x 0  Alert Admin	Hi SMU guys, Let's not look too far off into the US or elsewhere. Base on our stock market here in Singapore, can you name any great company that consistently outperform the STI index but doesn't pay out any dividends? My concept as a layman is simple.....Growth or value company. The former should not pay any/less divs as it needs $ to continue to expand until a stage whereby it's being transform into the latter. At this stage, the mgmt will have to decide whether to return excess cash to shareholder or continue to expand or partially both.Maybe Robert Kiyosaki is right and I do agreed with him because he's more conservative when come to investing in stocks, thus, more interested in a value stock with track records and fundamentals. Hope this help!
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BusinessLike Senior	07-Aug-2007 12:02        BusinessLike About Contact  Quote this Post!
x 0   x 0  Alert Admin	Hi Littlemiss, Good to see you on this forum. Well, I disagree with what RTK said in this case. I think his ideas in personal finance is great but I disagree. People think dividends are the best because you feel the cash in your hands but there are tax consquences. especially if you are holding US stocks. There are many great and growing companies that do not pay out dividends. I don't think that should stop you from investing in that stock. Focus on the business. Furthermore, if management finds that its company stocks are undervalued, then it is more tax efficient to buy back stocks as a form of returning cash to shareholders. When a company earns say $2 a share, all the earnings belong to you. If you own 10 shares of the business, $20 of the earnings belong to you. However, the company does not pay it out but helps you reinvest it. Therefore, it is extremely important that you invest in a company that can earn high returns on equity so that every dollar reinvested by the business (and returns back to retained earnings) earns a high return for you. e.g. a company earning 20% on equity consistently every year with $100 starting shareholder's equity Yr1: Earnings $20 (retained and reinvested), so new shareholders' equity has $120 Yr2: Earnings $24 (retained and reinvested), so new shareholders' equity has $148 So you realize that letting the business reinvest your earnings for you, it is like the company is a savings account helping you put your money to work. Yes, you cannot see the cash coming into your hands but it sure is working for you. If a company is earning high returns on equity and has opportunities abundant to grow its business, it is actually destructive for shareholders to receive a dividend since now YOU have to think how you can invest the dividend to make more than the 20% the company should do on your behalf. Some managers just capitulate and give a dividend because it is the popular thing to do, without regard that it is extremely unshareholder oriented. There are some US extremists that say they will not invest in businesses that give out dividends since it sorts shows they don't know what else to do with the money. I won't advocate that. However, businesses should pay out dividends if they are unable to create the same dollar of value on this incremental retained earnings and pay it out to shareholders dollar-for-dollar to be deployed. Hope this helps.
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littlemiss Member	07-Aug-2007 01:57        littlemiss About Contact  Quote this Post!
x 0   x 0  Alert Admin	hi there SMU! i've got a question.  just that i don't know where it would come under - FA or TA.  in any case, here it is. how far do you agree with what Robert Kiyosaki advocates in his teachings by saying "a stock has to be paying a dividend before you should invest in it"? am i right to say his focus is probably more the health of the business, not so much its actual payout?  after all, there are many great businesses out there worth investing in that don't pay dividends.
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