Fundamental Analysis Workshop Series

Session Five – Dividend Investing

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Metrics Q & AIntroduction

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Metrics Q & AIntroduction

SYLLABUS

Metrics Q & AIntroduction

SEMESTER 2WK 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

Agenda

• 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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Where to find? Basic Decrypting

Applying the Information Q & AIntroduction

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%

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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Q & A

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THANK YOU!

Metrics Q & AIntroduction