Fundamental Analysis Workshop Series Session Five – Dividend Investing

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SYLLABUS Metrics Q & A Introduction 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

Agenda Dividend Yield / Payout Ratio Beta Cyclical? Non-cyclical? Visibility of earnings FCF (Free Cash Flow) Metrics Q & A Introduction

INTRODUCTION Metrics Q & A Introduction

PROFILE NUS Invest Research Analyst - Property Year 2 BBA 2 years experience Pure Fundamental Analysis Metrics Q & A Introduction

Measures for dividend stocks Metrics Q & A Introduction

Dividend Yield Percentage of what company pays out a year over price = annual dividend per share / price per share “bang for your buck” Metrics Q & A Introduction

Where to find? Basic Decrypting Applying the Information Q & A Introduction 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% Metrics Q & A Introduction

Why so important? Sustainability of dividend Low ratio – earnings support dividend Smaller dividends easier to pay out than larger dividends Metrics Q & A Introduction

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 Metrics Q & A Introduction

Why so important? Many utilities < 1, less risky High tech stokcs > 1, more risky Many high dividend stocks < 1, eg. SPH Metrics Q & A Introduction

Metrics Q & A Introduction

Non-Cyclical Defensive stocks not very correlated to economic fluctuations Goods and services we always need: Utilities, household non-durables (eg. P&G), Tobacco Metrics Q & A Introduction

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 Metrics Q & A Introduction

Charting – which is cyclical? Metrics Q & A Introduction

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 Metrics Q & A Introduction

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 Metrics Q & A Introduction

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 Metrics Q & A Introduction

Q & A Metrics Q & A Introduction

THANK YOU! Metrics Q & A Introduction