Dividend Investing – Mark Lin (2011) – Part One

Full title and details: <Secrets Of Dividend Investors: The DIY Approach To Finding The Best Dividend Stocks> Singapore. Rank Books.

Notes: Dividend Stocks are classified with Real Estate Investment Trusts (REITs) in this book. REITS are mandated to release to unitholders at least 90% of its taxable income. [Mark Lin makes a valid point in that if the regulations change, then this figure may fall. Thereafter, the REITs will lose some of its allure vis-à-vis company stocks. Companies, in trying situations, may declare zero dividends. The company management could justify it on the basis of saving the company for the longer run.]

Please verify whatever information here before taking any investment action. This book was published in 2011. The year now is 2016. Further, this post is principally intended for my own financial education.

Other internet sources you might wish to refer to include the:

Big Fat Purse

Motley Fool

For a broader perspective on investing, consider this post from the Big Fat Purse with Andrew Hallam: cancer survivor, teacher, and investor. He was featured on Channel NewsAsia in 2012.

You may likewise look at 1 Timothy 6:10 of the New Testament in the Bible.

In addition, do spare some time to learn about (the late) Dennis Ng. (In memory of Dennis Ng Kah Wan 吴加万).

The word ‘share’ is interchangeable with the term ‘unit’; so too is ‘firm’ equivalent to ‘company’.

Words in Bold are Mark Lin’s concepts from the book.

Finally, the pages may not be in order.

P. 27 – Prioritise credit analysis over equity analysis! In other words, ensure that the company you select is likely in all analysis and judgment to remain solvent!

P.29 to 30 – Potential companies should have:

a. Low leverage ratios where Debt to Asset = total debts ÷ total assets; Debt to Equity = total debts ÷ total equity

b. High liquidity ratios where Current = current assets ÷ current liabilities; Quick = (cash/equivalents + marketable securities + accounts receivable) ÷ current liabilities

c. High coverage ratios (ability to repay debt) where EBIT = earnings before interest and tax ÷ interest expense; EBITA (earnings before interest, taxes and amortisation) interest coverage

[Reflective note: More study on the above required.]

d. strong ‘moat’ (attributed to Warren Buffett, of Berkshire Hathaway) – a definitive competitive advantage in the industry/sector (perhaps the best ones would be the monopoly)

e. Good top-line/revenue performance/intake even in downturns

f. ‘Dividend Sustainability‘ where there are pro-dividend shareholders such as government, mutual funds, unit trusts, family, and major owners; consistent Dividend Payout ratio; low Beta (definition from Investopedia, no date) below 1 [Lin suggests consulting Reuters Finance for the Beta. Do find out if there are other sources for cross checks!]

P. 7 – If a company provides a 5% dividend yield, it means that you would recover your invested capital (nominal sum) in 20 years.

P. 8 – Mark Lin’s suggested approach includes:

Dividend Safety‘ = rising dividends paid out year after year (Benjamin Graham apparently considered companies who distributed dividends for 20 consecutive years)

Capital Preservation‘= purchasing a stock at considerable discount to intrinsic (what we can call ‘true’) value

P. 21 to 22 – The alternative to cash dividend would be scrip dividend. This means more shares for stock owners. It may indicate cash flow difficulties of the firm.

P.22 to 23 – Key dates for dividends:

a. Announcement Date – quarterly; semi-annually; annually

b. Ex-dividend – To buy stock/unit 1 day prior to enjoy rights to dividend payout

c. Payment Date

[Reflective question: How far do major shareholders influence dividend payout and its policies?]

Dividend Payout ratio = Dividend ÷ Net profit

“Sweet spot” ranges from 50 to 80%; local telecom company M1 in the years before 2011 returned 80%.

P. 25 – “dividend yield above 10% in non-bear market” may mean firm is unstable or weak

P. 24 – Free Cash Flow to Equity = Operating activity cash flow – capital expenditures – debt repayments + new debt issued

Dividend Yield = (dividend/share) ÷ (price/share)

It is for comparison against the risk-free rate [usually government bonds – the safe ones]

 

 

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