2017 Dividend Update

At the end of this year, I gave myself a target of pocketing $1100 of dividend. After the last wave of results for all my companies, I have collated the dividends received and in 2017, I have received a total of $1083.87. A little shy of the $1100 target!

Achieving this target was not easy in 2017 as one of my core holdings, Singapore Post, decided to peg dividend payout to earnings rather than a fixed rate. SingPost paid out $0.065 of dividend in 2016 compared to $0.020 in 2017. I patched this hole mainly by deploying more capital this year and scoring a buy in Silverlake Axis. Silverlake Axis has its best dividend yield for years due to its divestment of GIT, with a $0.048 payout or 8.18% according to StocksCafe. Myself, I reaped a 7.19% dividend yield as I missed the first payout this year.

Other notable stock was Karin Tech where it distributed 10.28% of dividend. I have absolutely no idea how they maintain this level of dividend till today, but it is still serving me well despite many years of skepticism.

All said and done, I am satisfied getting more dividends this year and all this was to ensure that I can increase my dividend gradually and eventually able to reap enough passive income to be financially independent. You should starting working on yours too!

2016 Investing Report Card

Year 2016 Closes, Results and Returns

2016 closes and with SGXcafe calculating returns on a daily basis, I knew what was coming before the year ended. Disappointingly, my portfolio underperformed STI ETF returns this year - the first time since 5 years of investment. With the negative losses last year, it was quite disappointing to have not grown my investment this year as well.

2016 Portfolio XIRR: -2.215%
STI ETF XIRR: 2.864%

Fun Facts

For now, let's lighten up the mood for some infographic about my portfolio movement this year:

Dividends Goals

With regards to $1000 the dividend goal I had set for 2016, you can see that I have narrowly missed it with $954.25. This partly due to Singpost's tightening dividend policy as well as Falcon Energy not yielding any dividend this year.

For 2017, I hope to increase my dividend received to the tune of $1100. Building up a portfolio that can gives me a steady income stream is one of my retirement goals for the long long term, and I hope that I am able to slowly accomplish this goal.

To increase the dividend, one way is to focus on purchasing stocks that are dividend-yielding and have the cash flow to support it. Monthly investment in STI ETF with my siblings will also contribute in a minor way, probably to cover the shortfalls from the dividend cut by Singpost.

Going Forward

Despite these two years of negative returns, I aim to keep the course. But it has certainly made me re-assess the way I look at gains. A problem is me not realizing profits only to watch it slip away and never coming back. One part of me always wants to be noble and be a "long-term investor". The other part is Graham's and Buffet's mantra of only buying companies where you will never give it up. Falcon Energy has been a bummer and I hope it proves itself in 2017.

For further pickings, I have a few stocks in my mind for research and considerations. Working gives me an steady income to invest but it takes time away from research and homework. But I hope to stay the course and just keep moving ---- towards financial freedom!

Updates to Portfolio

It has been a while since I updated this blog of mine, the last post being in July after I bought Falcon Energy. So three months later, what has changed with my portfolio? Well, below are the three main things I would like to talk about in this blog post, to keep myself and you updated.

DCA on STI ETF

Since June this year, I've start contributing a small amount of money into dollar-cost averaging of STI ETF. This was done through POEMS ShareBuilder Plan. Though the fees were relatively higher than say POSB InvestSaver, I mitigated this consideration by pooling money with my siblings and buying it together. This way, the commission by percentage is comparable to POSB InvestSaver and I also get to enjoy the reinvestment option of dividend issued. 

Every drop of water contributes to the ocean. Buying STI ETF religiously every month will hopefully contribute to my retirement fund 40 years down the road. 

Bought more Falcon Energy

Hindsight is always 20/20. Before the results announcement, share prices were ranging as high as 19 cents - allowing me to exit with some profit. However, thinking it was a start to bull run in O&G, I decided to hold on. Without a dividend, coupled with the deterioration of the industries (think Swiber and Swissco's bond default), Falcon Energy was also brought down. 

However, its full year results were decent still and it left a big question mark for me. 4.92 US cents translates to a P/E of less than 3 leh! Cash generated from operations was US$111,747,000. There was a net decrease of cash because of hefty repayment of borrowings, which was the right thing to do in this environment where debt brings down O&G companies. Reflects the prudence of the management, to be frank. 

A strong argument I had previously was Falcon Energy stake in CH Offshore. CH Offshore's stock price had tanked recently and as of now stands at $0.29. This stake in CH Offshore translates to a value of $177M for Falcon Energy. Funny how at $0.16, Falcon Energy is valued at $129M. So, core business of Falcon Energy is valued at -$50M? 

With this, I've decided to further another round at $0.166. There are a few risks I am aware of and would highlight here for reference. 

1) Protracted depressed oil prices. Similar to the shipping industry, this would probably kill off many O&G companies. While the P&L looks good now, experience says that the bottomline will turn red in a quarter. 

2) CH Offshore revalues. A main reason why I invest in Falcon Energy was the stake in CH Offshore. It is not entirely impossible that CH Offshore becomes a penny stock, rendering its stock worthless. Then, what value to talk about? However, keep in mind CH Offshore does not hold significant borrowings and thus less likely to go under compared to say Ezra. 

3) Interest rate rises fast. In the annual report, every 50 basis points increase in interest rate will decrease Group's profit by US$801,000. US is increasingly likely to raise rate further this year. 

Planning to Sell Karin Tech

Should I....? Debating hard on this one, but already queueing at $0.315 to sell. 

Between China's diminishing economy, lowest EPS ever, and statement like this..,

"After the disposal of KCF A Store Limited, it is not expected the CEP segment will be able to fill the revenue and profit shortfalls in the near future even though the Group has been adding various prestige consumer electronics products into its product mix."

Totally feel like relieving myself of this company. The only thing holding me back from selling is the 7% dividend that was declared along this set of horrendous result. The management totally knows how to keep its shareholder. This is also apparent in its annual report where it shows that the company has already paid out 126% of the IPO price in dividend (within 10 years). Omg, if I hold for 10 years, will I be getting "free" shares as well?

Previously, I was scared that dividend paid out is no big deal as prices drop after the dividend was paid out anyway. But k1 Ventures totally proven me wrong on this point. Therefore, I am totally undecided.

Fundamentally, I should be getting out while stock prices are held up by the dividends. Emotionally, what about the dividends!!! T__T Help pls? 

My Stock Holdings (March 2016)

After a long wait, I can finally sit down and count my gains for the month of March! With the Singapore stock market in the doldrums for the first two months, there were finally some rebound even though I did not enter anything prior to it. However, as I also did not let go of any stock, it meant my portfolio clawed back some gains.

This also highlighted how investing is actually advantageous to constant trading. According to this article, missing just the best ten days of S&P in the period between 1993-2013 will cost the investor a 3.8% drop in annualized returns. While many will argue that trading is better as one can let go of stocks at the highest and buyback at a lower point, I can assuredly say that I neither have the skills nor the time. Hence, as a student and eventually a working adult, passive investing will still be the way to go.

On the matter of dividends, I received a total of $227.42 for the month of March. This amount was disbursed from HPH Trust, SingPost and Karin Tech. Hence for the first three months, the total dividends received comes up to $261.57, a little over a quarter of my dividend goal this year.

Also, I had bought GLP on 31 Mar 2016 for a cost of $1.955. A little high, but through the average of valuation methods which I may subsequently write about,  the fair value price of GLP I came up with was actually $2.42. Coupled with GIC being the majority shareholder, I feel that there is some merit to the purchase of GLP. With the addition of GLP, the breakdown of my portfolio is shown below. Let's hope 2016 is a good year for all in the stock market =)

My Stock Holdings (February 2016)

Whew, busy month with Design Project, FYP Presentation, projects, tutorials, midterms. For record sake's, I have come online to record this short entry of my stock holdings in February. Whilst the market condition is still bad, there is a restoration of stability and hence marginal growth.

In the month of February, Keppel Reit has declared a dividend of $0.0168 per share. I chose to reinvest this dividend through the DRP. While filling up the form, I realised that I can allocate the shares I own to either 1) Receive the cash dividend OR 2) Receive new shares. Knowing this, I can allocate some of my share to receive cash dividend while still receiving the same number of new shares. This is possible because there can be no shares lower than 1 and is thus rounded down. Might as well use this spare shares to receive the cash dividend! The amount is not huge, but I hate to give away free money.

Therefore, the first dividend I received this year will be $34.15. The start to my $1000 dividend aim for this year. Below is my stock holdings at the end of February. Noticeably, HPH Trust has fallen in overall value to stand below Keppel Reit.

PS: I finally found a job!

My Stock Holdings (January 2016)

Below is my portfolio distribution for the first month of 2016. Here's to a better investing future for the rest of the year! 

From the start of this year till end of January, the main movement was me selling Bank of Ireland in favor of Karin Tech. The sale of Bank of Ireland was triggered by the disappointing lack of positive push to the stock. Though the economy for Ireland and Europe had been improving for a while now, with stable dividend on the way, it had not translated into positive movement for the stock. The premise of me buying Bank of Ireland back in 2014 was based on the improving economy in Ireland as well as the improving of the bank's balance sheet. Both events happened without any significant price increase. Hence by referring to my buying motivation, I had realised holding the stock by this point, meaningless. This also serves as a good lesson for readers out there that when buying stocks, remember to write down your reasons for writing it. Periodically review it to see that the reasons are still valid and if the reasons are not valid anymore, consider selling it. 

Following the previous post about Karin Tech, I have decided to add the stock into my portfolio for the strength of management, resilient earning power, advantageous foreign exchange and good dividend. However, from the announcement from the company on Wednesday, I might have misjudged the strength of the business itself. Profits from Karin Tech plunged approximately 80% due to softening consumer electronics product. I had reservations about that section of business due to the low economic moat, but I did not expect it to drop so much. Nevertheless, a dividend of 0.05 HKD translate to a half year dividend yield of 3%. This is sufficient for me to consider holding it for longer periods of time. A warning to any investors though, the stock had fallen below the 3-year low of $0.285. Hence, a short term investor may have problem holding it. 

HPH Trust has also announced their results recently with a drop of dividend. A constant worry of mine is the huge debt of HPH Trust. Though HPH Trust has good dividends in the past years, the stock price drops along with the dividend and I wonder if the dividends/business is sustainable in the long year. I will be reviewing this stock with more spare time. 

SingPost announced marginal growth in profit despite higher revenue. It is really frustrating that profit does not grow proportionally with revenue. Logistics can be a lower margin business. However, having waited over 2 years for profit catch up, it does not appear to be happening. Management guided that "transformation" is finalizing and it is time to reap its fruits of labor. With the departure of Wolfgang Baier, I really wonder how the company is going to fare in the future. If not for my wonderful entry price, I may have sold this stock already. Perhaps I sound salty, but the downgrade from OCBC is infuriating. Within a quarter, the bank has conveniently slashed $0.82 off the target price of SingPost. While details has been lacking for the justification of the new TP, I find it unbelievable that the cut is so much within a quarter. Makes me wonder do the research house just see.... "heyyyy, the current trades so far from our TP. I think it's time to cut it nearer to current price to stay relevant." Also, I don't see eye to eye with people stating that dividend has increased from 1.25 cents to 1.5 cents. This is because it had been declared by SingPost since 1 year ago and should have been factored into stock price long ago. Don't mislead potential investors.

-End of whinings-

With the removal of Bank of Ireland, my portfolio has transformed into a full dividend machine and I hope I can meet my dividend target this year. The Year of Monkey should be good to people born in the Year of Goat and I hope it is true! So Happy Chinese New Year all! Have a prosperous year ahead!!

Karin Technology Holdings (K29.SI)

http://www.karingroup.com/eng/images/global/home_logo.gif

Business

Karin Tech is a leading electronic and industrial components distributor and providor of IT solutions, as well as outsourcing service provider in Hong Kong and China. In 2011, Karin included retail arm to its operations, opening four In-Smart stores in Hong Kong. . Though the business sounds unappealing, the surprising fact is this:

Since 1977, the company had always been in profit!

The company did not enjoy continuous EPS growth as its earnings were affected in the wake of 2008 GFC and in 2014. However, the fact that the board was able to maintain profitability despite many economic downturns is indeed commendable. The company also has a substantial economic moat due to its very diversified business. Listed on its Products & Services, Karin Tech looks like a semiconductor company and a IT solutions provider. Throw in the retail arm, Karin Tech has a hand in every section of the technology sector. The business not as exciting as companies like Apple or even Foxconn, but I particularly like companies that no one pays attention to.

Dividend

Business aside, let's look at the company's past dividends. The most attractive part of Karin Tech is actually a dividend yield that matches REITs and Business Trusts. Below is the dividend yield for 2013, 2014 and 2015. 

Year	Dividend (S$)	Closing Price for Year	Dividend Yield
2013	0.0264	$0.33	8.00%
2014	0.0228	$0.30	7.60%
2015	0.0313	$0.31	10.10%

As you can see, the dividend yield for Karin Tech is substantial and comparable, if not better than many dividend stocks out there. Another point to note is the closing price for each year. Notice that the price is not volatile at all. Hence if you would are okay about not chasing capital gains but settle for dividends, Karin Tech is indeed very appealing. 

As with all dividend, one have to check how sustainable the dividend policy is. Below is the graph of how dividend payout correlates against EPS of the company. From the graph, you can see that management had discipline in keep dividend payout in line with EPS. Dividend payout average at approximately 50% throughout the years. Therefore, the dividends are indeed sustainable and payout are strictly adhered to by the management.

Valuation Metrics

From Yahoo website, the P/E of Karin Tech currently stands at 8.16. For a company that is relatively low profile with not as "attractive" business, I would say that the P/E is reasonable but leaves room for upside. For P/B, I referred to POEMS Stock Analytics and yield a figure of 0.56. Both P/E and P/B indicated that the margin of safety is relatively large. A downside I identified is actually how the stock rolls with the dividend payout. For example in 2010, when 8.2 HK cents of dividend was paid, the year end price was $0.22 - 6.5% yield (ignoring currency). Market historically had priced this stock to yield high dividend, which means that upside might be limited as well.

A catalyst that warrants a share price increase is the fact that HKD, by proxy of USD had already increased against SGD. Since HKD is pegged to USD, the stronger USD meant that the earnings of the company will be higher. Also, dividends paid out by the company is denominated in HKD, which might potentially mean higher payout. Most of the time, I feel that the market do not pay much attention to currency exchange (maybe because the companies always strip of forex gain/loss anyway) but in this case where dividend is transacted in HKD, perhaps this Karin Tech might be worth a look.

I'm none the wiser about the general strength of the industry. However, judging from the slowing economy in China, perhaps Karin Tech might be negatively affected by it. But, it is definitely worthwhile to note that the strength of management will make me comfortable holding the stock long-term and ride out downturns with them, all the while collecting the dividends they give out.

Valuation

The historic EPS growth between 2004 and 2015 was 5.87% annually. Projecting CAGR forward, the EPS in 2017 will hit 0.3295 HK cents or approximately $0.06. Applying the same P/E of 8, the simple projected price of Karin in 2017 should be around $0.48 (share increase in excess of 50%).

The current value arrived using Gordon Growth Model is looks even more monsterish. From Reuters, the beta of Karin Tech is 0.21. Re-using the risk-free rate and market's rate of return from previous post, the required rate of return or discount rate amounts to 3.465%. In 2005, the dividend was 6 HK cents while in 2015, it was 17.6 HK cents. Taking into account that 2015 was a record profit year, I will slightly adjust the "ending" dividend to 15 HK cents. Thus in the span of 10 years, the dividend growth of Karin was 9.6%. If you realise, the discount rate is actually lower than dividend growth and hence lead to a negative stock price (technically not possible).

Hence, an alternative will be to lower expectations and change using Constant Dividend Growth to valuate the company. Let's lower expectations even further and assumed that the upcoming year's dividend is 10 HK cents (44% drop). Using the formula, the current stock price for Karin Tech should be HK$2.89 or S$0.52.

Conclusion

 From the valuation section, you can see how horrifyingly undervalued Karin Tech is. However, there are some issues to consider. One would be the continuation of business and dividend. Will dividend continued indefinitely? Is the survival of business a cause of concern? Perhaps the growth of the entire business will be in jeopardy in the near future due to slowing economy of China.

However:

1. P/E and P/B are very low, similar to unfavoured industry. Given that it is a high dividend yield stock, I think it should command higher valuation
2. Business had always been profitable. Good economic moat
3. The company had been faithfully declaring dividend for the past 10 years
4. Recent hike in US$ (of which HK$ is pegged to) against S$, translating to higher dividend

Given all these reasons, I think Karin is  a safe bet and have taken a small position.