Dividends and Share price

[Drizzt]

There won't be any free cash flow left at the end of the day. The best example is Jurong Tech is using their share as currency for acquisition at a time when their share price is being depressed.

Its interesting when u highlight this point... did jurong tech use their shares as currency for acqusition at a time when their share price was depressed? i think on hindsight, Jurong tech got the better end of the stick.. since the price now is much lower than when the aquistion took place. Chances are jurong tech knew that there will be more bad news before good news came and decide that its a good time to do acqusition when prices was still high relative to current price. If you look at it in this perspective you will realise perhaps they were helping shareholders after all..

Using inflated share price for acquisition is actually good for shareholder. Actually I din follow the share price and time of acquisition.

But coming from cash generating point, Jurong Tech does not have the cash generating ability for acquisition, especially in the last 2 years. Which mean they are being "forced" to use their shares as currency, big or small.

Other than that, the simple objective of the article is only to show dividends and share price, and generating returns on retained cash affects share price.

For you scenarios, maybe it is better if you add in the growth in NBV per share. As there is always an inseparable relationship between BV, ROE, EPS and growth. Perhaps when presenting in whole rather than per share basis give a better pic.

As far as I can see, many din get the relationship of ROE and growth.

I always think that you can do much better.

are you refering to intrinsic value vs actual book value changes?

[donmihaihai]

No, just changes in book value. Or simply mean each ROE of 30% increase the book value by 30% if no dividend is being pay out. Intrinsic value is another story.

[dowz]

Hello, i enjoyed this article alot, and i think its very useful for me. Erm, but theres something i want to know which is the PE stated in your scenarios, do they play a part in the growth rate? Pardon me for being clueless!

paiseh, think i did not state explicitly stuff which was obvious to me. Forgot that when i write, i need to show my thought process more clearly.

To compute shareprice, i used PE * EPS
hence, since i assumed PE 20, share price would be the EPS * 20

[dowz]

thanks for your comments dmhh,
probably i wasn't clear enough, think i need to brush up my writing skills!

perhaps showing NBV would be clearer, and in fact, it is rather easy, just adding an additional column in my excel spreadsheet and formularizing it.

thanks! will work on the improvements. not easy putting thoughts into words, i must say!

There won't be any free cash flow left at the end of the day. The best example is Jurong Tech is using their share as currency for acquisition at a time when their share price is being depressed.

Its interesting when u highlight this point... did jurong tech use their shares as currency for acqusition at a time when their share price was depressed? i think on hindsight, Jurong tech got the better end of the stick.. since the price now is much lower than when the aquistion took place. Chances are jurong tech knew that there will be more bad news before good news came and decide that its a good time to do acqusition when prices was still high relative to current price. If you look at it in this perspective you will realise perhaps they were helping shareholders after all..

Using inflated share price for acquisition is actually good for shareholder. Actually I din follow the share price and time of acquisition.

But coming from cash generating point, Jurong Tech does not have the cash generating ability for acquisition, especially in the last 2 years. Which mean they are being "forced" to use their shares as currency, big or small.

Other than that, the simple objective of the article is only to show dividends and share price, and generating returns on retained cash affects share price.

For you scenarios, maybe it is better if you add in the growth in NBV per share. As there is always an inseparable relationship between BV, ROE, EPS and growth. Perhaps when presenting in whole rather than per share basis give a better pic.

As far as I can see, many din get the relationship of ROE and growth.

I always think that you can do much better.

[chantc]

So we expect another article from you dowz?

Just one more comment... I don't think your title suits your article. People reading the title would expect something more towards dividend play, not towards growth play.

[dowz]

well, the article IS about dividends and IS about share price. keke

mislead people to come and read! aint that good

[donmihaihai]

thanks for your comments dmhh,
probably i wasn't clear enough, think i need to brush up my writing skills!

perhaps showing NBV would be clearer, and in fact, it is rather easy, just adding an additional column in my excel spreadsheet and formularizing it.

thanks! will work on the improvements. not easy putting thoughts into words, i must say!

Don't need to thank me, I din contribute anything. Hope that my tone was not that of lecturing. Not qualify too as you should know that unlike you, I don't even has any relevant qualification. Actually I should keep my mouth shut

[dowz]

thanks for your comments dmhh,
probably i wasn't clear enough, think i need to brush up my writing skills!

perhaps showing NBV would be clearer, and in fact, it is rather easy, just adding an additional column in my excel spreadsheet and formularizing it.

thanks! will work on the improvements. not easy putting thoughts into words, i must say!

Don't need to thank me, I din contribute anything. Hope that my tone was not that of lecturing. Not qualify too as you should know that unlike you, I don't even has any relevant qualification. Actually I should keep my mouth shut

don't need so humble la! i'm just a newbie in investment, and lots more to learn from shifus like you. i'm still wet behind my ears.
Your tone wasn't lecturing, and any comments for me to improve is much appreciated, don't worry about it, do comment more!

and my qualifications are crap la, means nothing one.

btw, great to see you posting in sgfunds again, your presence was missed!

[Hulumas]

besides, no one says they buy the stock because it doesn't gives dividends right?

Actually, there are such people around. They refused to buy companies who give dividends. It just happens that these people are keeping quiet in the forum.

One's portfolio should have a mix of dividend, and growth plays. Let me say again that dividend and growth plays can be found too, just that its not easy to find them.

However, one issue is the selling of your stock to take profit. Other than poem's unit share market, there's no way to sell a little bit to take profit, unless you buy-in with a significant amount. With the minimum commission, the costs of selling a little sometimes will be too great.

Dear Dowz and Chantc,

Better is to buy stock without dividend in long term (several years) and going to offer dividend in short term (all the retained earning for several years) for example: China Fashion. The best is the combination of the above plus the counter itself is turning around stock for examples: KXD and Star Cruises (CAVEAT EMPTOR). Any comments?

[blanket]

Dowz

You assumed the following:

1) The company is able to generate the same or higher return on equity for the cash that is retained in the business.

2) The investor is unable to take the dividends and reinvest it themselves and generate much higher returns.

Would not the use of the 2 assumptions ALWAYS lead to the conclusion that investors of companies which do not pay dividends will be better off than those that did?

[donmihaihai]

Dowz

You assumed the following:

1) The company is able to generate the same or higher return on equity for the cash that is retained in the business.

2) The investor is unable to take the dividends and reinvest it themselves and generate much higher returns.

Would not the use of the 2 assumptions ALWAYS lead to the conclusion that investors of companies which do not pay dividends will be better off than those that did?

But dowz is just writing with a fake example. Change the assumption, the conclusion change as well.

In real life, the 1st assumption is the most difficult part.

2) The investor is unable to take the dividends and reinvest it themselves and generate much higher returns.
There is always a problem on overestimating own investing abilities. If the public available returned of many wellknown investors are being use as a gauge, company with ROE of >15% should not give dividends if all income can be reinvest and generate at least the same ROE.

[davidlau]

Good article Dowz.

After all these discussions on dividends, I had a short chat with my dad. I mention the pros and cons we discussed here about companies paying out dividends or utilizing the money for growth (my dad don't know what's a forum), and his view was that sometimes business runs into risk. Even strong, stable companies, or even government-linked companies may run into risk or losses in the future. We never know. A good dividend payout is assuring to investors, as a basic - at least I am getting better than risk-free investment, eg. fixed deposit. On top of that, any capital gain, you earn extra.

Yield is one of indicators to value a stock. It is used in comparing one stock to the others at a period of time, properly one year or 3 years duration.

For long run, perhaps, we should look at the quality of company management. Who is running the business and execute the management is much more important.

If yield is high and management is 'honest', investor will get more guarantee reward.

[archonmage]

Dividend approach will be good for those less active investor, buy at a good price and sleep, i.e. SMRT (always earned)

Growth approach will be good for those active and have a good depth of understanding and knowledge in companies.

For those who wish to know about which approach is better, go ahead and read "The Future for Investors" by Jeremy Sigel

[Hulumas]

Dowz

You assumed the following:

1) The company is able to generate the same or higher return on equity for the cash that is retained in the business.

2) The investor is unable to take the dividends and reinvest it themselves and generate much higher returns.

Would not the use of the 2 assumptions ALWAYS lead to the conclusion that investors of companies which do not pay dividends will be better off than those that did?

Dear Blanket and Dowz,

Generally speaking the above assumptions valid with the
assumption 1. 65% probability
and assumption 2. 70% probability. so as a hold, my comment is still valid

[dowz]

Dowz

You assumed the following:

1) The company is able to generate the same or higher return on equity for the cash that is retained in the business.

2) The investor is unable to take the dividends and reinvest it themselves and generate much higher returns.

Would not the use of the 2 assumptions ALWAYS lead to the conclusion that investors of companies which do not pay dividends will be better off than those that did?

i missed this posting. Apologies.

As dmhh pointed out, yes, i've used a fake example.

However, note that if we are investing or trying to invest like buffett, assumption 1 is not so invalid. Ie, we should be investing in companies with an economic moat, hence, ensuring same or higher ROE.

Assumption 2, i have no answer that is largely different from dmhh, but do take into account transactional costs, as well as the fact that by investing dividends ourselves, we are essentially trying to make 2 correct decision, instead of just 1.

ie, if we are to "Reinvest" -we have to sell (correct decision?) buy another one (correct decision?)

for me, i rather make 1 good decision, and stick to it, instead of trying to make another 2 good decision, after making 1 good one.

[chantc]

ie, if we are to "Reinvest" -we have to sell (correct decision?) buy another one (correct decision?)

for me, i rather make 1 good decision, and stick to it, instead of trying to make another 2 good decision, after making 1 good one.

This sounds remarkably like someone else.

[dowz]

ie, if we are to "Reinvest" -we have to sell (correct decision?) buy another one (correct decision?)

for me, i rather make 1 good decision, and stick to it, instead of trying to make another 2 good decision, after making 1 good one.

This sounds remarkably like someone else.

same teacher perhaps?

[clonewolf]

har? i m lost...

[chantc]

ie, if we are to "Reinvest" -we have to sell (correct decision?) buy another one (correct decision?)

for me, i rather make 1 good decision, and stick to it, instead of trying to make another 2 good decision, after making 1 good one.

This sounds remarkably like someone else.

same teacher perhaps?

That teacher likes dividends you know.

[chantc]

har? i m lost...

You can search that keyword and you will see it originated from someone. His nick starts with G.

[lily]

<spam>

[Hulumas]

<spam>

OIC.

[kimchi]

Is it true that dividends from U.S. stocks is subjected to 30% tax?

[Hulumas]

[quote="kimchi"]Is it true that dividends from U.S. stocks is subjected to 30% tax?[/quote]
Yes, taxable but how many % I do not know?