My Stock Holdings (May)

Many companies are reporting their financial results this month and this lead to some price fluctuations. In my portfolio, all had reported their results with the exception of Bank of Ireland. As of now, I have no intention to sell any stock in my holding based on the results. Hence barely any change in the composition of my holding.

Also, I'm scouting for good stock to add to the portfolio and will buy in when I return to Singapore from my exchange.

One of my criteria for buying a stock is that it must give out dividend. Singpost, ST Eng and HPH Trust gives out dividend in my portfolio. Bank of Ireland is an exception as I recognise that it is a high growth stock and does not necessarily need to give out dividend.

As of May 2015, I received a total dividend of $278.25

**Edit 1: Revised dividend amount to a lower value as I accidentally calculated dividends I haven't receive.

**Edit 2: Chart removed because I set it to update with latest information -- not accurate info

My Stock Holdings (April)

Starting this month, I will try to show my monthly portfolio in this blog.

Whenever I buy or sell a stock, I will try to justify the cause. My investing mantra lies between an investor and a trader. Therefore, you'll see quick transactions on some stocks while others may be there for years. So here's my portfolio for this month!

**Edit: Chart removed because I set it to update with latest information -- not accurate info

Risk of Buying Foreign Stock

It's has been a while since I've updated this blog. Being on study exchange do take up my a whole load of my time. In this post, I want to talk about the risks of buying foreign stocks listed on foreign exchanges. In my 3 years plus experience, I had only purchased several foreign stocks. These stocks were namely Apple Inc, Bank of America and Bank of Ireland. As one can see, buying an average of 1 stock per year seems awfully miniscule. This is because of the added risks of buying shares of a foreign company.

1) Foreign Currency Risk

Perhaps the most prominent reason to research doubly hard when one is buying into a foreign company and that is the foreign currency risk. The ultimate aim of buying stock is to grow the money you have and that is achieved through capital gain and dividends. When purchasing foreign stocks, the foreign currency risk adds another layer of hindrance to the desired capital gain. A prime example is my purchase of Bank of Ireland (BKIR). I bought it at 0.34 EUR back in 21 February 2014. As of today, I have an approximate gain of 6% at 0.36 EUR. BKIR Chart

Admittedly, the gain is not up to standard given the time invested. Now, take a look at the EUR-SGD rate. On 21 Feb 2014, the rate stood at 1.7346. Today, it is a whopping low of 1.4492 - a drop of almost 17%. As you can see, my capital gain was wiped out by my currency loss. Foreign currency risk needs no further explanation.

2) Lack of Information

Knowledge is king as many once said. Keeping in times with financial news is important when it comes to stocks. Many a times, news can convey a sense of general sentiment in the stock market. Also, crucial news will reach you last unless you are specifically hunting for it (eg. results release). I normally use Google Alerts to update me of any news related to the foreign companies I buy into. However, it is not enough in my opinion as I am not in the midst of the "battlefield". In the case of Bank of Ireland, I am unsure of Irish opinions on the bank. I am unsure of BKIR's reputation in Ireland. I am unsure of its scale within Ireland. These are some of the many uncertainties that one have to deal with when buying into a foreign company and thus foreign stocks are not suitable for investors without much experience.

3) Different Time Zones 

Another disadvantage of buying foreign stock is dealing with different time zones. If you own European stock, the market opens in the afternoon and closes at SG evening time. That seems fine enough. If you hold US stocks, the market only opens ~ 9pm and closes just before you wake up. In the time that you are asleep, crucial news might emerge and affect stock markets without you knowing. That is the stuff one has to deal with when buying foreign stock.

Despite all these shortcomings, one might consider buying foreign stock due to several reasons. One might be to diversify stock holdings out of one's country. Second, it might be due to the long time horizon of a stock where you have faith in. As a result, short term fluctuations that might be disadvantageous to investors would not be significant. However, as mentioned earlier, it is not advisable to invest in foreign stock unless one accumulated enough experience in the market.

Selling Stocks with a Purpose

It's been a long while since I've posted on this humble investing blog. The reason being that this Singaporean child here is currently residing in Sweden for student exchange programme. Settling in has been time-consuming. In this post, I want to touch on the topic of selling stocks. If you did not know, I advocate long-term value investing as influenced by Warren Buffet. This means that you buy undervalued stocks and hold long term as the intrinsic value will definitely be realised eventually. Personally, I think holding stocks is the easy part while selling brings about more emotional struggle.

In one of the books I've read (but cannot remember), the author suggested investing and by extension, selling stocks with a purpose. This purpose is non-exhaustive and can range from buying a car, paying child's university education to retirement fund. The concept is essentially like a saving accounts albeit that investing in stocks will generate high returns. Need money for house at 32 years old? Start putting money into stocks every month till the time you buy a house.

The reason why I’m mentioning this is due to the fact that I had sold my Apple Inc holdings recently. I had mainly thought to sell Apple Inc as its iPad sales were weak and the next catalyst should be the launch of iWatch. Having tried the cheaper version of Mi band, I feel that wearable devices are not going to be as indispensable as something like the iPhone. Within one month putting the Mi band, I had stopped wearing it as it was too troublesome to keep it on all the time and the function of tracking steps and sleep was not worth the trouble. Having Apple trading at the high, I decided to sell it at $124.30.

Should I have sold this stock due to short-term gains? For me, investing right now is for capital appreciation and to fund my university education. Selling in this period even for short-term gain seems like an OK choice personally. The lesson to take away here is that investing should be done with a final aim in mind. Only when you are approaching the period when you need the physical cash that you should start liquidating the holdings you have.

Apple is currently trading at $129.49 and it looks like I sold too early or on wrong premises! However, gain is still a gain. 40% gain for this stock.

STI ETF Monthly Investment Plans in Singapore

It's been awhile since my last post. The reason being that I'm currently residing in Sweden for an overseas exchange programme and had been spending the time preparing for this exchange. The cost of living in Sweden is indeed high. A McChicken meal here costs 65 SEK, equivalent of nearly $12 in Singapore. And nope, the portion is the same. The huge expenditure that is going to come with this exchange got me thinking how to recoup the money back eventually. I can only depend on my fixed salary in the future to recoup this expenditure.


However, it is obviously known that the salary is going to be the same every month. How do you maximise this salary that is going to come in every month? INVEST! Like what Warren Buffett once said, "Pay Yourself First". Take out a portion of your salary each month and invest it in monthly investment plans that are provided by POEMS ShareBuilder Plan, OCBC Blue Chip Investment Plan (BCIP) and POSB Invest-Saver. These platforms allow you to invest as low as $100 each month at lower commissions. Once the GIRO instruction goes through, the designated amount will be deducted every month and invested into counters you chose at the start. I highly recommend that you choose one counter to invest in and that is the STI ETF counter. Without going too deep into the subject, STI ETF tracks the STI index and it has been shown that it is very hard to beat the index's return even for seasoned hedge fund managers. So instead of fretting which counters to invest in at the start, I am recommendeding just one: STI ETF



I did a comparison of the three low-cost investment plans and it is shown in the table below.

A few points to note here:

1)  Buying-in Commission

POSB appears to be the lowest cost amongst the three at 1% flat rate. Suppose you choose to invest $100 per month, the commission rate of POEMS itself will be 6%! If you are investing $600 per month, then go for POEMS. $500-$600, you might want to go for OCBC BCIP.

2) Dividend Reinvestment

To me, this dividend reinvestment differentiates POEMS Sharebuilder Plan from the other two. Any dividend from STI ETF will be reinvested the following month. On the other hand, OCBC and POSB only credit the dividend into your bank account. Those who are privy to the power of compounding interest will know that reinvesting dividend will "snowball" your gains over the longer time horizon. Therefore POEMS wins in this aspect.

3) Misc Costs (Dividend Charges, Sell Commission)

After praising POEMS to the sky in point, it's time to point out the elephant in the room. The so-called "hidden costs" in POEMS are pretty high. Any dividend issued by STI ETF will be subjected to a $1 charge. Not mentioned in the table, there are also charges for scrip dividends, corporate actions, insufficient amount for GIRO. Furthermore, the commission that comes with selling the shares accumulated is definitely a downer. From all this, I gather POEMS is trying to attract people that are willing to invest more per month such that all this costs become negligible.
Edit: Self-assisted selling using POEMS is possible at min $25

4) Underlying ETF

The underlying STI ETF that each platform buys differs. However, the difference is minute and should not concern us. For general info, SPDR has a lot size of 1000 shares while Nikko AM has lot size of 100 shares. Also SPDR charges a fund fee of 0.3% per year while Nikko AM charges 0.39%. Again, this only concerns the people running the three platforms.

5) Partial/Total Redemption

POEMS and OCBC allow partial redemption of the shares accumulated. POSB, on the other hand, only allows total redemption. This might be disadvantageous if you are in an urgent need of money. However, since I believe that once you sign up with these investment plans, you should be looking at the time frame of at least 5 years. Therefore this account should not be your piggybank when you want to go on a Europe trip or something. That said, if you happen to run out of money, you can opt to freeze the GIRO payment and continue earn dividends, rather than redeeming the shares for cash. 

EDIT (18/1/16): Partial redemption of STI ETF units is now possible for POSB.

Conclusion:

If you are investing upwards of $500, go with POEMS for the dividend reinvestment. However, if you are still uncomfortable with the numerous charges that POEMS carries, by all means go with OCBC BCIP. 

If anything between $100-$500, choose POSB because of the low commission cost. Also, if you are new to investing, POSB is good as it is more clear cut with the charges. 

As much as I would like to start this monthly investment plans right now, I'm a poor student that can only afford to invest $100 a month at most. However, I really like the automatic dividend reinvestment provided by POEMS Sharebuilder. Therefore, I'd prefer to start with the Sharebuilder plan when I draw a regular paycheck upon graduation.

Hutchison Port Trust (NS8U.SI)

Hutchison Port Trust (HPH Trust) started trading with much fanfare on 2012. Listed in SGX, it is touted as the world's first publicly traded container port business trust. HPH Trust owns interest in container port assets in Hong Kong and Shenzhen - two of the busiest ports in the world. In 2013, its container berth handled a combined throughput of 22.8m twenty-foot equivalent unit (TEU).

HPH Trust is one of the thirty components in Straits Times Index (STI), having replaced F&N in 3 April 2013. As of 13 December 2014, it is also the highest yielding stock within STI at 7.8%. On 27 October 2014, the company ended the third quarter with an operating profit of HK$1.24 billion, a 3.5% increase year-on-year.

Given the high dividend that HPH Trust pays out every year, one should be prudent and check whether these dividends are sustainable into the future. The key objective of the Trustee-Manager was stated in the 2013 Annual Report as the following: "... to provide unitholders with stable and regular distributions and long-term growth in distributions per unit (DPU)" However, a quick look at the DPU since IPO was actually decreasing.

This also points out the deceptive nature of dividends yield. Dividend yield is based on past dividends and definitely not indicative of future dividends. Furthermore, dividend yield is based on current stock price and this means that falling stock price inflates dividend yield. For instance, HPH Trust indicated that it is distributing 45.88 HK cents in its IPO Prospectus and that translated to 5.8% dividend yield based on IPO price of US$1.01. However, due to the subsequent price fall to US$0.78, the yield had been bumped up to 7.5%. Hence, a lesson to take home is that stock purchase should not be based solely on the dividend yield number.

Besides the falling distributions, there are also a few points that does not paint a rosy picture of its financials. The first point is the enormous payout ratio. In 2011, the payout ratio is 167%. Next year, it increased to 199% and subsequently stood at 213% in 2013. Such high numbers indicated the distributions were likely unsustainable and that might have been the reason why distributions were falling. 

The trust might be able to give out that much dividends with its positive operating cash flow but quick inspection of the cash pile over the years indicated that it is dipping into its coffers to give such high dividends. In other words, the distributions for the past 3 years are unlikely to be sustainable. The Trust must find ways increase its profits otherwise unitholders will be looking at reduced distributions.

Another point of concern is the liabilities of the Trust. While the debt to assets ratio are pretty reasonable at below 50%, we can see that significant portion of the liabilities have been transferred to Current Liabilities recently. Current Liabilities are debts and obligations due within one year and with significant increase in that amount, a cut in dividend might be plausible in the near future. 

With all these data, is HPH Trust properly valued at US$0.69? Analysts opinions were quite differing with UBS having at TP of US$0.67 and DBS at US$0.78. However, one common point in both reports was that the management was considering whether to match cash flow generation to distribution payout more closely. Given that cash flow were negative in 2012 and 2013, distributions look to be suppressed in the mid- to long-term.  

Having bought HPH Trust at US$0.68 way back in 21 November 2013, I am fairly pessimistic about the dividend outlook. However, since I am comfortable with dividend yield above 6.5%, I will hold on to it until capital gains (around US$0.725) justify me switching out to other dividend stocks.  

ST Engineering (S63.SI)

Amidst the recent drop in oil prices, there are gems to be found. Some are oil-related stocks like Keppel Corp which may or may not have been oversold compared to crude oil price. Others, like ST Engineering (S63.SI) are dragged down by the pessimistic market. Upon some search on how oil price affects the business of ST Eng, I found this statement in the company's 2009 annual report:

"Oil prices have been on the uptrend since the beginning of the year and was around US$70 at year’s close. High oil prices would have a negative impact on the Group’s customers in the Aerospace sector, and this may in turn impact the Group’s performance. However, such an environment of high costs could present opportunities for third-party MRO providers like ST Aerospace, as airlines outsource more MRO work in an effort to contain costs." 

Although a report in 2009 is too outdated for my liking, I will conclude that oil price does not affect the company negatively at the very least. Due to its slump in stock price, the dividend yield had been bumped up to 4.7% from 4+% previously. Attractive, in my opinion.

However, as fate would have it, I chanced upon an article which highlighted the hidden risk of dividend stocks. In the article, SIA Engineering was cited as an example where high dividend payout did not mean that it was a good buy. This was due to its unsustainable dividend policy where dividends regularly exceeds its earnings. The shortfall between earnings and the dividends have to been patched up using its cash pile.

Following what the article did, I went to compile a list of ST Eng's financial and dividend history as below.

Financial Stats

Year	EPS (cents)	NAV (cents)	Dividends (cents)	Payout Ratio
2004	12.26	47	12.39	101.06%
2005	13.64	51.2	13.6	99.71%
2006	15.15	53.1	15.11	99.74%
2007	16.95	54.7	16.88	99.59%
2008	15.82	52.7	15.8	99.87%
2009	14.78	52.09	13.28	89.85%
2010	16.21	53.38	14.55	89.76%
2011	17.28	57.79	15.5	89.70%
2012	18.76	61.51	16.8	89.55%
2013	18.73	68.14	15	80.09%

The Earnings Per Share has been increasing steadily throughout the years with a slight bump in the wake of 2008 Financial Crisis. Dividends had been steady since 10 years ago. With decreasing payout ratio, it seemed that ST Eng had been prudent with its cash pile. This also implies that ST Eng does not need to dip into its cash reserves in order to maintain same dividend payout even if EPS drops. ie Sustainable Dividend Policy

Having bought half a lot of ST Engineering at $3.37, I would seek to complete my other half of the lot by waiting at $3.24. ST Engineering is a very solid company as I see it as a company that is effectively backed by SAF. During NSF days, almost all the vehicles were serviced or modified by ST Kinetics, a subsidiary of ST Engineering. Following Warren Buffet's advice, I would still see ST Engineering existing 50 years down the road and thus bought the stock amidst some market turmoil.