Sunday, November 9, 2014

Sunday Ramblings

Today is a bit of a lazy day for me.

The Invest section of The Sunday Times was just plain outright boring, so I turned over to the internet to check out what interesting reads I might find online.

Firstly, I was very intrigued by Uncle CW8888's post on dividends and high-yield stocks, and of course the less often thought about relationship of the payout ratio. I think he is very right to point out that if higher yields is not necessarily better, especially if payout ratio is high.

Technically, the ideal company should have high yields but a low payout ratio.

Although it might be intuitive to think that a low payout ratio with a high yield is the best, actually a lot of research that has shown the opposite. On average, companies with a slightly higher payout ratios (60-80%) tend to perform better than those with lower ones (30-40%). The reason that many have suggested is that a low payout ratio of 30-40% is an easy target for many companies to hit, but a higher payout ratio reduces a lot of retained earnings and makes profitability and efficiency more emphasized.

I wonder if there is an ideal number or range for the (inverse payout ratio X yield) variable.
Eg. A company with 90% payout (10% retained) and 8% yield is 0.008
A company with 40% payout (60% retained)  and 3% yield is 0.018
Therefore, company with 40% payout and 3% yield is technically "better" in terms of giving back to the shareholder, while retaining earnings for the company? I don't know.

I also found Ladykiller's post on spread trading to be a really good introduction to it. From what I understand, it's hedging within a specific play (airlines, precious metals) and instead just focusing on the relative value of the two investments to each other. Pretty interesting, I quite like this idea!

I think long Silver, short Gold could be a great pair for a spread trade, since the Gold-Silver Ratio (GSR) is at multi-year highs! This is definitely a trading strategy that I will read up more about to see if it is suitable for me.

Finally, an updated spreadsheet on the dividend champions of the SGX, which I had actually previously talked about. Now it is updated with the latest values and also includes REITs and property tickers which were previously excluded.

Still, I take their values with a pinch of salt. Although the data is extracted from Reuters, I don't know how accurate it is. I checked on the total debt to capital on some of the tickers and they are wrong, so just use it as a sort of rudimentary screen I suppose.

I re-ran some of my filters on these stocks with a large margin of error (since the data doesnt seem that accurate) and I looked at my resulting list. It looks very similar to the watchlist that I have already, haha. I saw a few additional names and I went to read their latest quarterly reports and read up on their businesses. Some looked great, others not so much. In the end, I added in a few rare finds to my watchlist which I think look very promising!

Okay, this is probably the last post from me for a while, I will be away for the next 2 weeks, probably sleeping in the wet jungles since it's rainy season now. Wa, sian.

1 comment:

  1. that post was a quiet dedication to you, brother.

    have a good time out there, i actually enjoy ICT, it's a chance to clean my mind and forget about markets for a while.


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