One of the news which has brought some life into the stock market this week was the purchase of a minority stake in SingPost by the Chinese e-commerce giant Alibaba. Everyone knows or should have heard about this highly successful company and it's founder, Jack Ma, so no need to spell further. A friend who has bought some shares prior to this announcement was in dilemma on whether should he take profit or keep it for it's dividend. I believe there are many like him, not sure what to do, and well, on a positive note, it is a good problem isnt it. I have shared with him my thoughts and here it is what i have told him.
Fundamentals
Let's take a look at the share price, and with the spike from the news this week, you will find that it is already multi-year high as shown in the diagram below from yahoo finance. At this price, is the upside more than downside?
Next, let's us look at it's P/E and P/B ratio and I have also made comparison with it's peer as highlight in the red box in the diagram below, These companies are quite close to SingPost interms of their market cap. From it's peer comparison, it is difficult to determine if the PE is high, but at 25 times, this is definitely much higher than the average of our STI. On the P/B ratio, it is quite high in comparison with the list of companies below.
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| Source: FT.com |
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| Source: Singpost.com |
I had extracted the diagram above from the SingPost website, it shows the 10 years historical dividend payout by the company. It is quite consistent at 0.0625c every year for the past 10 years, except for a one time special dividend.
Scenario I
Most of the folks bought this counter and keep it for dividend. If this is the case, let's take a look at how this works out with the assumptions that:
- 10 lots of shares were bought in 2003 at 80c
- dividend at 0.0625c
- Never had sold any regardless up or down
- Held on to the shares till today
After 10 years, today he would have only collected total of $6,250 in dividend, and missing out at least 2 opportunities for capital gain in 2009 and 2012.
Scenario II
Assuming he adopts the 15% cut loss, and in 2009, he decided to take profit off the table at $1 a share. For the 10 lots that he had purchased in 2003, his profit would have been $6375(incl dividend). Later on, he realised that after the crashed, it had recovered back to 80c again in 2009, the price which he had previously paid for. He then decided to buy again, and holding the counter till today, he would have collected another $2500 of dividend. In total, you gain $8875. This gain would be much more if it has also accounted for the correction in 2012.
What do you think, what would you do, I am also happy to learn from you.
6 comments:
I think I will take the profits ie Scenario 2 and wait for a good time to enter again in the future
Yeap, that's what I will do too, again, it depends on individual and what you are after, isn't it.
For retail investors who have not much time monitoring the market and looking for stable stocks that provide them with good dividend income, a buy and hold strategy would be better suited for them in this case. I have bought into Singpost at the IPO price of 60 cents and have collected about $800 per lot till far.
This is also one strategy but entry price has to be low so that dividend collected over the years reduce the cost of stock to zero cost.
How about third case, suppose I bot at $1 and I have collected dividend over the years.
In a mkt crash, singpost drops below $1, I collect even more for more div?
Suppose you bought $1 in 2005, and it went up to $1.2+, then it crashed to your original price in 2009. You decided to preserve your capital and cut at $1. At this point, you don't lose anything, infact you gain from the dividend in previous years, then it went to 80c in 2009, and from chart you noticed that it's near low and you bought.
Would this be even better? I mean no ones knows the future but it's good to learn from history.
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