Fundamental Analysis Workshop Series
Session Five – Dividend Investing
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DISCLOSURES & DISCLAIMERS
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recommendation contained herein is suitable or appropriate to a recipient’s individual
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SYLLABUS
SEMESTER 2
WK 2
• Introduction to Stock Investing
WK 3
• Art of Reading Annual Reports
WK 4
• Picking the Right Stocks(Part I) – Top Down Analysis
WK 5
• Picking the Right Stocks (Part II) – Bottom Up Analysis
WK 6
• Picking the Right Stocks (Part III) – Dividend Investing
RECESS WEEK
WK 7
• Portfolio Management for the Retail Investor
WK 8
• Case Study 1
WK 9
• Case Study 2
WK 10
• Case Study 2
WK 11
• Traders Interview
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Agenda
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Dividend Yield / Payout Ratio
Beta
Cyclical? Non-cyclical?
Visibility of earnings
FCF (Free Cash Flow)
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INTRODUCTION
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PROFILE
• NUS Invest Research Analyst - Property
• Year 2 BBA
• 2 years experience
• Pure Fundamental Analysis
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Measures for dividend stocks
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Dividend Yield
• Percentage of what company pays out a
year over price
• = annual dividend per share / price per
share
• “bang for your buck”
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Why so important?
• Some investors require minimum stream of
cashflows
• Invest in stocks with high, stable dividend yields
• E.g. $1 dividend per year, for $10 share, yield is
10%
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Where to find?
Basic
Decrypting
Applying the
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Payout Ratio
• Amount of earnings paid out to
shareholders
• = Dividends per share / earnings per share
• E.g. $1 dividend per year, for $10 share,
yield is 10%
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Why so important?
• Sustainability of dividend
• Low ratio – earnings support dividend
• Smaller dividends easier to pay out than
larger dividends
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Beta β
• Measure of volatility, or systematic risk
• Of a security/portfolio compared to market
• 1.5 means stock is 50% more volatile than
market
• Found by regression analysis
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Why so important?
• Many utilities < 1, less risky
• High tech stokcs > 1, more risky
• Many high dividend stocks < 1, eg. SPH
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Non-Cyclical
• Defensive stocks not very correlated to
economic fluctuations
• Goods and services we always need:
• Utilities, household non-durables (eg. P&G),
Tobacco
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Cyclical
• Earnings depend on whether or not economy is
strong
• Strong – people spend on luxuries:
• Car manufacturers, airlines, furniture retailers,
clothing stores, hotels and restaurants
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Charting – which is cyclical?
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Visibility of earnings
• Extent which future projections are probable
• factors: regulatory uncertainty, price volatility
and weak economy
• Can also refer to presence in market –
dominant company greater visibility
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Free Cash Flow
• Operating CFs – capital expenditures
• Cash company is able to generate after
paying for asset base
• = EBIT (1-t) + Dep & Amrt – Change NWC Capex
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Why is FCF important?
• Pursue opportunities that add shareholder
value such as new products or acquisitions
• Earnings can be subjective but cash is real
• -ve cashflow is not necessary bad –
investments in capital
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THANK YOU!
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