Dividend Analysis : PIRAMAL GLASS CEYLON PLC(GLAS.N0000)

From a initial [Scan] of CSE I'm looking for a good dividend paying counter to add my portfolio. Earlier I looked at [NDB], but I'm not completely satisfied about the results. Then I picked GLASS because it has the highest five year dividend growth rate(84%) and EPS growth rate(74%).

My History With GLAS

I've had glass in my PF before. So that I know about the company a bit. About two years ago I made this post at Sri Lanka Equity Forum. If you do not about it yet, I seriously suggest you get registered there. It's a good place to get general information and opinions.

Followings are the points I made about two years ago.
  1. Expiration of BOI tax free period of 5 years in Dec. 2012
  2. Rising energy cost.
  3. Rising cost of Soda Ash

Now  2 years(actually 21 months) have passed by and GLAS price have come down from 6.00 to 4.20(LKR). That's a 36% price drop and I think current price reflect the points I raised above. As GLAS came high in our search, I think it is better to revisit the above points.
  1. Company now pays 10% income tax (for 2013 & 2014). After 2014 they have to pay 20%.
  2. Furnace oil price rose by 80% during 2012 and electricity by 20% from April 2013.
  3. Soda Ash price has come down by 25%(Approx.) 

That's about the history and a bit of future. Now lets look at the dividends.
 

GLAS Dividends

This is the dividend history to GLAS from 2006(7 years).
  

As you can see, they had problems in 2009 and 2010. And they had a dividend cut in 2010 & 2012. A company not increasing the dividends at a inflation beating rate is a concern for me. A complete cut is a nightmare. I seriously consider selling when a company cut or freeze dividends.

Anyway now we are at the end of 2013. Price have fallen to reflect the business challenges. It is nice to see how a dividend investor would have performed during past 7 years. Here is a simulation of gain/loss of glass from 2006.

Light Blue line indicate the YOY loss or gain
Dark Blue line is the annualized gain with dividend being re-invested
Red line is the annualized gain without dividend being re-invested

 
There are two interesting points to note in the graph.
1. Reinvesting dividends will always minimize the loss and maximise the profit.

This is something I always say in this blog. Dividends do protect the investor in multiple ways.

2. Some times it is better to sell and book the profit.
There is no harm in selling some of your holdings and realizing the profit if you are not sure about the future. As a rule of thumb, If you can get 5 years worth of dividend income within 6 months it is better to sell and book the profit.
 

Conclusion

Trading at 52 week low, I think GLASS is bit under valued now. However immediate future may pose some risk. For a long term investor this could be an oppetunity to collect some. This is a well established and essential business. Business may be slowing down a bit.  Margins may get shrink a bit. But people are going to use GLAS products for the forseable future. I'm going to keep GLAS in my watch list. I will take my time to analyse few more counter before making a move. 

I'm going to look at LFIN next. If you have your favourite in the list, comment below so that I can have a look at it.
 

Cheers...

Why Dividends Are Important

When making a investment decision, Dividend Yield is the fist thing I look at. I consider many other factors, but I never invest on non dividend paying companies. This is why dividends are so important to me.

1. A Guarantee Of Safety

Generally companies which pay dividends are well established and managed professionally.
A company can not pay dividends (and keep on increasing it for years) if their core business is at risk. Financials can be manipulated but dividends are not. If they don't have cash, then they can't pay you. Once they pay it, it is cash in your pocket and it is yours to spend.
 

Dividends are the best feedback I can get from a company. Look at the companies like LLUB, NEST, CTC, GLAS, etc. They have been doing something right for decades. If you are holding a dividend paying stock, there is a team of professionals working tirelessly for you. They will worry about the economy, government policy, inflation, war or even zombi attacks for you. When I receive a dividend check, it is not just a check. It's a Certificate of Safety.

2. Beating The Inflation

Investors must keep a close eye on the inflation. Inflation eat up the wealth without you being noticed. However dividend investors can protect their income against inflation by carefully selecting companies which increase dividend at a rate higher than the inflation.
If you are going to retire one day(we all will) and live off the dividend income,
then you have to make sure your dividend check get bigger in every year.

Sri Lanka is a high inflation(10%) country. I always look for companies with a track record of increasing dividends at a rate higher than 10%. This is where [Share Screener] becomes a great asset to me. There are 32 companies which have 5 year dividend growth rate of 30% or more. All of them may not suitable for dividend investors. But there a plenty of opportunities to explore. I do share my dividend analysis here. make sure to subscribe or visit this page frequently to get the updates.

3. Passive Income Generation

This is the ultimate goal of dividend investing. Idea is to collect enough dividend paying shares over the time, to a level where annual dividend received is higher than your annual salary. Imagine what it would be like if you can live off the dividend without touching capital investment. You will never run out of money and one day you can hand over your entire wealth to your grand kids.

I hate to wake up and go to office every morning. I hate rush hour traffic. My dream day will begin when I quit my job and start living off the dividend income. Dividend investors do plan for retirement 10-20 years ahead of time. My parents worked till their 60's to get a pension which became worthless in less than 5 years due to inflation. I'm not going to do the same mistake.  I will go on to details of my retirement plan in a separate post.

4. Magic Of Compounding

Albert Einstein is a true genius. He said, "Compounding Interest is the Greatest Force in the Universe. He who understand it, earns it and he who doesn't, pays it". Dividend investors can reinvest their dividends and earn more from reinvested dividends. Over the years compounding will have a staggering effect on your portfolio.

Actually my favorite part of investing is re-investing the dividends. LLUB is a perfect example for Compounding effect. They pay dividend quarterly. I buy 100+ new shares in every quarter by reinvesting the dividends. If you do the match, my actual dividend yield is considerably higher than the indicated yield. Compounding is a nice topic to discuss and I'm going to make a separate post on this in the future.

5. It Teach Financial Discipline

Perhaps this it the most important part of dividend investing. Dividends will teach you the time value of money. It will prevent you from over trading. You will not do any stupid mistakes. Noise in the market will not effect your decisions. You will have more time to read and think than clicking the mouse. Eventually you will learn to live below your means and save for the future.

I learned that buying new stuff and posting on Facebook will not help in me a long time ago. For many, first thing on the list is a new vehicle after getting first salary. Then maybe a housing loan which you will pay for next 20-30 years. Add a insanely expensive wedding to that and your financial future will be sealed for ever. Most professionals I know lives from pay check to pay check. There is no retirement plan in the horizon, let alone an early retirement. Dividend investors will never fall in to traps like this. That alone is enough for me to invest on dividend paying companies.

Colombo Stock Exchange Share Screener

On a [previous note] I wrote about the share screener 

which I use to scan the entire market for possible dividend investment opportunities.
Today I'm going to share the tool and give you a brief introduction.
 

Introduction

A share screener is a valuble and time saving tool which allows user to scan the market
for a given set of parameters. There are many online screeners including google and yahoo.
Unfortunately I could not find any screener which supports Colombo Stock Exchange(CSE).
I wrote this in March-2013 and being using since then. This is coded in VB macro and
I use a macro enabled excel work book for better representation of results.
Hopefully this will save a lot of time for you.
 

Screening Parameters

You can scan the market for any of the following combinations
1. P/E Ratio
2. Return On Equity (ROE)
3. Current Dividend Yield
4. Five Year Dividend Growth Rate
5. Five Year EPS Growth Rate
6. Five Year Average Dividend Yield

 
All you have to do is select the preferred Minimum and Maximum values(Yellow Cells)
and click on "SCREEN" button.

For example if you want to search for all companies which have,
1)P/E less than 10
2)ROE greater than 20%
3)Current DY greater than 3%
4)Five year dividend growth rate greater than 10%
5)Five year EPS growth rate greater than 10%
6)Five year average dividend yield greater than 3%
Following will be your inputs and screen results.
 

Results

As you can see above, there are 10 counters which matches your search criteria.
We dividend investors do not jump in and buy just for the greediness of dividend income.
There are many things to consider and this tool will list a lot of other data
to help you in the decision making process. Hoping to make a separate post on this.
In the meantime you can have a look at my "Dividend Analysis on NDB Bank PLC"

Also it is worth to look at the distribution charts of Screening Parameters.
This will give you the big picture of Colombo Stock Exchange.
Graphs are on "Distribution Charts" sheet.

 

You will be amazed to find out that there are,
・58 counters with five year EPS growth of more than 30%
・51 counters with ROE higher than 20%
・37 counters which are trading P/E below 5
・36 counters which yielded over 5% dividend
・33 counters which paid over 4% dividend for last 5 years
・32 counters with five year dividend growth of more than 30%

You can see to the enormous growth potential CSE offers for
inteligent, value seeking, longterm dividend growers.
I'm pretty sure Dividend Investing will be the next big thing in Sri Lanka.

Download

Download the tool here
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 Update : Above link was updated on 2014/07/21
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Note : You should enable Macro and Data Connection from Excel Trust Center for this to work.
Make sure you subscribed to mailing list and check this page regularly for updates.
I'm still adding more functions to this and there will be a DB update at least once a month.

A Look At The Dividends (NDB Bank)

On my previous post Value Hunting I scanned the market for following conditions.

1. P/E between 1 and 10

2. Return on equity is higher than 20%

3. Current dividend yield is over 4%  
4. Dividend growth rate of last 5 years is higher than 10%
5. EPS growth of last 5 years is higher than

 Now it is time to have a inside look at the results.

 

In this post I have pickedup NDB because it has the lowest P/E, Highest ROE and Highest DY

NDB.N0000

 Just by looking at the results, NDB seems to be very attractive. 
For the reference, let's look at the current yields of several investments vehicles and Inflation.
1. Commercial banks saving rate 4.5%
2. Inflation November 5.6%
3. Commercial banks fixed deposit rate 10%
4. T-Bills/Bonds 11%

Inflation beating dividend yield was very pleasing to me. So I looked at the last annual report wondering why NDB is trading so cheap. And aha... They have had a very unusual gain last year. Over 300% increase in Other Operating Income. I don't want to dig in to that. They are probably not going to repeat the same performance in this year or next year. This is exactly why dividend investors should look at the history of more than 5 years.
 
Here is the dividend history of NDB for last 10 years.

It is dosen't look bad for me. But the astronomical performance of last year distort reality a bit. To be honest, I like the continuous divined payment histry. The most important factor for me is the consistent dividend payment. I will write a separate post explaining why I like dividends so much. For the time being, here's a simulation if I had bought and hold NDB for last 10 years.

Light Blue line indicate the YOY loss or gain
Dark Blue line is the annualized gain with dividend being re-invested
Red line is the annualized gain without dividend being re-invested

Conclusion

Remember that we are looking to buy something which is worth holding for the life time.
There is no point of being hurry to jump in right now. Market is lot older than you and it is going to live longer than you. I learned something in this effort and I hold my next move for the time being . Next time I'm going to have a look at GLASS. Let's descide on NDB after that.

Cheers...

Value Hunting

As my profile says I'm a dividend investor, I thought of starting my first post with some research on fundamentally strong yet undervalued shares in CSE. 

■SCREENING

I did a screening of all 288 companies listed in CSE to find,

1. P/E between 1 and 10

2. Return on equity is higher than 20%

3. Current dividend yield is over 4%

4. Dividend growth rate of last 5 years is higher than 10%

5. EPS growth of last 5 years is higher than

 Later on I will share this screening tool with you. It allows you to scan the entire market with your preferred fundamentals. This is a real time saver for me. Also I will explain why I select above criteria for initial screening in a separate post.  For the time being just enjoy the results!
 

Counters with Attractive Valuation

As you can see, I found 9 counters which fits my search criteria. That doesn't mean rest of the 279 counters are not worth looking. But these are the most undervalued for the time being.

■Can I jump and BUY now?

Unfortunate the answer is a Big NO! Value investing is not that easy. You have to dig in to financials and search more. I will pick some of the above counters and check whether it is OK to BUY in a separate post. 

I did not made this post just to point the readers in some direction. Actually this is the way I make my purchase decisions. Within next couple of weeks I do hope to BUY one of the above counters. As always I'm keen to learn what you think which I should buy. Leave your comment here and let me know what you think.