Be a Dividend Investor

A dividend investors goal should be to generate a increasing stream of sustainanle dividend income, through careful selection of dividend growth stocks. Their investment plan must not be dependant on daily market fluctuations. I am not being overconfident but a dividend investor must be able to say confidently that "daily fluctuations have no bearing on my investment plan" because i have bought this stock at a great discount and will keep building on it for the next 10 or 20 years (through 2-3 market cycles). 

Dividend investors out there, do not worry because most of your stocks will keep sending you dividends quarterly or annually (as long as the company is well managed, increasing in profitability year after year. What is most important is to focus on quality dividend stocks and purchase them at attractive valuations. In Singapore's short history, there are very few stocks that i can think of which have actually raised their distributions for at least ten consequtive years and may continue to do so for the next ten years. 
Companies like Singtel pay out dividends regularly, and it has increased over the past 11 years. They actually are a bit unpredictible because in 2003 and 2009, there was no increase. While on some years, you would get Special dividends, which is awesome. 
Take away the special dividends and other distributions and just look at Interim/Final dividends over the last 11 years and take the average:

2002 >>> 2013
5.5c >>>> 16.8c (dividends increased average 10.8% annually)
Which is not bad right?

As dividend investors, we should try and avoid unpredictability. I firmly believe that a strong management team which focuses on consistently sharing a portion of the profits with investors in the form of dividends will continue doing so, as long as the business is able to support it. Dividend Ranking website is pretty good to do the research on dividend history:
http://www.dividendsranking.com/index.php

I pulled this one for KeppelCorp from the above website:

There are of course another part of the dividend equation. In Singapore you can invest in REITs or Business trusts which promise you regular dividends (90% payout for REITs). But REITs  are not the same as company stocks. They did not promise an increase in dividends over time, just that 90% of the profits will be payed out, which means if they profit less in the particular year, you get less. Obviously. So there is the risk of unpredictability.

You know i wish investing in dividend stocks could be so easy that you can just buy it  and close your eyes. But you cant do that. Investors need to periodically monitor the financial health of their stocks. It should not be very complicated once you have done initial background research on the business and shareholding structure. Fundamentals of the company do not change overnight. Singtel will most likely be in the telecom business the next 10 or 20 years. Keep an eye out for news related to the particular stock such as mergers and acquisitions, that could prove very profitable or spell disaster in the making.

The bottom line is this: Market fluctuations should not scare intelligent dividend investors, instead it should be used as opportunities to build on your portfolio or trim off some profit. Steep drop in prices for dividend paying stocks provide excellent entry points for long term wealth accumulation. Personal note, Watch out for these in the next crash: Singtel, Singpost KeppelCorp, Jardine related stocks or if interested overseas, Coca cola; Colgate; Procter & Gamble; Exxonmobil; Kimberly Clark; Unilever; Merck & Co; Sanofi Aventis; Eli Lilly; Johnson & Johnson. If you noticed, Healthcare stocks have pretty good dividend payout rates but they are slow growth stocks.  

Investing in commodities? Who are you trying to fool Sunday Times?

I felt rather outraged by the article on Investment section in Sunday Times yesterday. Please be careful not to be persuaded by amatuer-ish writing on investments in the papers. To them its all about how many publications they have and how much money they are collecting. 

Referring to my previous article:
http://hiddeninvestor.blogspot.sg/2013/04/gold-in-not-investment.html

This time, I am going to take an example which i read on SeekingAlpha and adapt it to our Singapore style. lets see their comparison for Coca Cola vs. GOLD:

Lets say you have $15,000 to invest now and you have two choices and keep it invested over a period of 10 years. Lets assume Coca Cola continues its earnings and dividends growing at 9% annually. Annual dividends are still low, around 2.6%.For $15,000 now you can purchase 360 shares at $41.67

Scenario 1: Coca Cola

In 2013, he receives $403 in dividends
In 2014, he will receive $440 in dividends
In 2015, he will receive $482 in dividends

In 2016, he will receive $527 in dividends.

In 2017, he will receive $576 in dividends.

In 2018, he will receive $630 in dividends.

In 2019, he will receive $690 in dividends.

In 2020, he will receive $755 in dividends.

In 2021, he will receive $826 in dividends.

In 2022, he will receive $903 in dividends.

And in 2023, he will receive $987 in dividends.

By 2023, the investor has collected $7,219 in cash dividends. Even if Stock A trades at the same valuation in 2023 that it trades today, those shares will be worth $37,223. That same $15,000 worth of shares in 2013 is actually representing $1,676 in annual earnings that is generating $987 in dividends by 2023. In short, the investor would have turned $15,000 investment today into $44,442 in 2023. That is what an excellent productive business can do for you.

Scenario 2: GOLD

What if the investor believes what SundayTimes told him, that gold is the best investment to guard yourself against inflation. So the investor buys $15,000 worth of Gold like 10oz. credit suisse gold bar for $15,046 from a licensed seller. You bought the physical gold and kept it in your safe box for 10 years.

In 2013, the investor doesnt get any dividends, but pay rental for his safety deposit box.

In 2014, he still gets nothing

In 2015, nothingggg

In 2016, Walaueh! Gold dropped?!!?!

In 2017, C'mon leh, where's the money going?

In 2018, Shit, this safety deposit box is getting expensive

In 2019, Ahhh, better check gold price It may go higher

In 2020, Nope there's nothing

In 2021, Gold price is all time high again?! but for how long?

In 2022, Where are my dividends!??? I thought Gold is safe

In 2023, Why did i listen to SundayTimes? Haiya Sell sell...

By 2023, i predict the investor would be so anxious to sell his piece of gold. While the coca-cola investor keeps getting his dividend checks and keeps on rising. The gold investor receives nothing to accompany the passage of time. Hopefully Gold grew into some ultra-rare commodity. When he looks at his little bar of gold in 2023, he sees the exact same gold bar that went in there 10 years ago. Of course minus all the rental fees for the safety box. 

I like how the original author of the article expressed it: Gold is "non-productive asset" where there is no business growth, no profit, no dividends and no interest, only hope that someone is willing to pay more money for that chunk of metal that you paid in 2013. 

It is entirely speculation that Gold will continue to increase at the rate greater than inflation. I call that GAMBLING. After all, gold has no fundamentals; the only hope is that you sell during a time of particularly high inflation or extreme pessimism (which we have been seeing for the past 12 years). If a company like coca-cola keeps doing what it has been doing, investors will be receiving dividend increases of 8-10%. If we have inflation at 3-4%, thats good news for coca-cola investors, price of their soft drinks will also rise, earning them higher profits and passing it onto investors.

I dont want to sound like i am advocating for coca-cola here, you may wish to invest in other companies which have a great history of annual raises in dividends. For example, Kelloggs, Procter and Gamble, Pepsico, Mondelez, Kraft Foods, Colgate-Palmolive, Darlie. You get what i mean, those brands and household products you need single day till you die, those sort of companies.

Again i am not saying Gold is not a good place to park your money during bad times. Gold is great to trade on, just make sure your timing is fairly accurate. See chart below:

Coca-Cola Growth

Recently invested in Coca-Cola (KO) and I am happy with how it is growing recently. KO is the world's largest non-alcoholic beverage company, with the widest moats in the consumer beverage industry holding diversified brands and most importantly an EXTENSIVE distribution network. KO was trading at 52-week highs of $42.70 yesterday after reporting better than expected Q1, 2013 profits on 16th April. A net income of $1.75 Billion or $0.39/share. 

Worldwide sales volume grew at 4%, led by Coca-Cola brand (3%), Fanta (6%), Sprite (5%). Eurasia and Africa saw almost 15% growth while Latin America grew a solid 4%. I am convinced that we will see the most growth in these regions.

The management continues to set the five core strategic priorities as follows:

1. To grow sustainably and provide meaningful solutions that enhance the health and well-being of the communities they proudly serve
2. To win with Coca-Cola while actively promoting the brand and the category
3. To keep winning and executing with excellence at the point-of-sale
4. To keep maximizing the value of our global beverage portfolio
5. To encourage and inspire their system and associates to deliver on their mission

 I continue to like Coca-cola for its aggressive marketing and brand recognition, although i must say that it has been a while since i personally bought their products (switched to healthier options like green tea). Highly doubt they will stay away from non-carbonated/non-sugary drinks in the near future, perhaps they should acquire F&N. 

Disclaimer: I hold long position on Coca-cola (KO) and have no plans to execute any order within the next 72hrs. Would advise anyone to perform their own due diligence before investing at current prices, be patient for a decent pull-back before making a long-term investment decision.  

Coca Cola April Update - Changing Trends

According to Coca-cola's vision 2020, they will double their servings to 3 billion per day which is huge! This is only for its gold standard coca-cola brand and 2020 is not far away my friends. However they also own other revenue generating brands. Coca-cola is undergoing a transformation in this decade, they realise that a bigger portion of their revenue will derive from healthier drinks. The hard truth is people are increasingly health conscious, and the common Asian trend leans towards non-carbonated "healthier" sugar free drinks. Even in America, soft drink business has been declining. 

Their earnings grew by 15% last year with revenue growth slightly below expectations at $11.04 Billion. Thats why estimates for 2013 has been moved lower too (same case for many companies). Recently, it seems more people are switching to bottled water, teas and other non-alcoholic beverages recently. Throughout the 1990s soft drinks grew continuously but sales have been declining since 2005. Sales have dropped 1.2% for 3 years in a row (See Stats here) While soft drinks sales have been declining, healthy alternatives have been growing steadily. Coca-cola owns DASANI water, which saw an increase by 11% in 2012. Even in Singapore, i can safely say that quite alot of people prefer to drink water, ready to drink teas (ice Lemon/Green tea), coffee or sports drinks. Coke recognizes the potential for healthier beverages, thats why they are working on marketing several of their brands such as 'simply orange', 'Honest Tea', and 'Powerade'. In the midst of epidemic obesity due to sugary drinks, the global beverage giant is taking steps to increase its line of non-sugary drinks. (not because its the right thing to do but because it makes more economic sense, catering for public's change in preference)

 

Technically Speaking

The stock has done well since its split last year. It is presently trading at 40.65 - a return of about 14 5% if you were able to pick it up at $35.50 back in mid-Nov. Since its last big dip in mid March, the stock has been using the middle Bollinger bands as support and this shows how strong the move has been. Recently, RSI and MACD indicators have peaked signalling overbought status. Usually these are signs that the stock needs to consolidate before moving up again or we might see some kind of reversal pattern. What happens now may be influenced by market sentiments and not the company by itself. I have spoken about market cycles in previous posts, consumer non-cyclicals are better to hold during late bull to early bear markets. Analysts do predict that consumer spending is slowing down and that could affect the sale of beverages for Coke. However i have firm belief that Coke will continue to stay innovative, expanding their brands in emerging markets around the globe. If the trend continues, soft drinks will slowly decline in market share and unless Coke spends more money on offering non-sugary drinks, there will be other competitors to take its place, which i am sure they know. I expect the company to continue its focus on offering alternatives to soft drink market and we should see its revenue pick up over the years.

Disclaimer: I hold long position on Coca-cola (KO) and have no plans to execute any order within the next 72hrs. Would advise anyone to perform their own due diligence before investing.

Coca-Cola is set to rise again

Recent News about Coca-Cola:

Coca-Cola (KO) catches an upgrade from Credit Agricole to Outperform from Underperform. The stock has been a noticeable laggard during the bull run of 2013. 

Coca-Cola has always been a defensive stock with steady dividend payout rising by 7% annually for the past. It also happens to be my favourite stock, which i have been waiting patiently the past 3 years for an opportunity to get in. Recent stock split makes it cheaper for us small retail investors where price was adjusted from $80 to $40/share. Also KO has not been performing well in the past few months. I suspect this is due to people taking profit year end and moving into riskier assets like Bank Of America, JP Morgan and Goldman Sachs. (Which have all risen significantly, I personally took 40% profit from GS @ my set TP: $155)  

Back to Coca-cola, the stock price has been consolidating at around $37-38. To me, it looks like a great opportunity to pick this stock up @ current price below $39 with a target price $55. However, for me actually, this stock would fall under Warren Buffett scheme of buy and hold. Keep in mind that coca-cola has 42.8% market share, its a $74billion dollar brand, sells 1.7 billion servings per day. If they raise the price of each serving by 10 cents, they would  be earning $170 million profit/day.