Tuesday, July 06, 2010

To milk or to slaughter?

Having sold a dividend yielding counter recently, I was thinking about the age-old problems that plagued me. I was suitably reminded of someone's analogy (bro8888's?) that a dividend yielding counter is like a milk cow. Every other time, a milk cow will give off milk, so that you can drink some and sell some, thus giving you a good cash flow. Alternatively, you can sell the milk cow to someone at a good price and get several years worth of 'future' milk money now, so that if there's a mad cow diseases floating around infecting other herds, your future cash stream will be secured because it's in your hands now. This comes at a cost - you'll lose your future cash stream and possibly the price of the milk cow might also increase in the future.


To milk or to sell - that is the question


Quite a good analogy to stocks, no?


The counter I sold recently was singpost. This particular tranche I had held for quite some time - around 3 years in all. I had bought it at a rather high price of $1.18, something that I had regretted for an equally long time. However, I made good on the stocks when I sold it at 1.13, with my dividends covering all my capital losses and making up an 'okay' profit.


The thoughts that ran through my mind was if I should hold on to it longer to get more dividends or should I just sell to lock in my profits to get my hands on cash, and live to fight another day. Here's my reasons for divesting:


1. At 1.18 entry price, I was not doing as good on my yield. Singpost gives quarterly dividends up to a tune of 6.25 cts per annum, thus giving me a yield of 5.3% per annum. Not bad, but not fantastic either, considering other lower geared but higher yielding alternatives out there. Therefore, I was inclined to sell it to get the cash to get into the other alternatives.


2. A picture tells a thousand words. Let's see what this picture tells you:

Singpost - daily chart

I wanted to sell at 1.14 but after queuing for nearly a week, I couldn't get it done. I just opted for 1.13. This chart was not particularly bearish, but the overall market condition was, so I didn't want to risk what I had out there and just took what I can out of the table. The price dropped due to XD. On hindsight, I could have got the dividend, sell at 1.12 and have both my cake and eat it too. But alas, things are always much clearer after it had happened.


3. I told myself that I would want to 'trade' this counter again, with this as the second round. The time frame for trading this is actually quite long, which is fine for me actually. I'll want to trade it when the signal comes and to hold it for dividend yield when the price reaches around 90 cts level. At 0.90, the yield will be near 7% - that would be something worth holding for.

11 comments :

kanglc said...

>At 0.90, the yield will be near 7% - that would be something worth holding for.
So I know what to do :D
Interesting to know what do you plan to do with the proceeds of your singpost divestment?

la papillion said...

Hi Kanglc,

I replied your post the last time you enquired about singpost. Not sure where it is so I can't link it here. But if you do remember, go and check it out :)

I'll keep the cash first. Perhaps I'll enter one of these reits or put more into those counters that I already had - with a focus on yields. If the market doesn't come down enuff for me to do that, I'm happy with the cash. I've quite a number of commitments coming up that require the cash :)

PanzerGrenadier said...

Hi LP

I still have Singpost as it is a pillow stock. Its fundamental business is a monopoly or at least is monopolistic in practice so I think it'll be around when it's time to bequeath my holdings in Singpost to my daughter.

Be well and prosper. :-)

la papillion said...

Hi PG,

I'm not saying that singpost isn't good, it's just that the price I paid for is too high, haha :)

At a better price, I would consider it again. The gearing for this is rather high too...and not much growth for dividend in this counter, hence my hesitation to keep this longer than necessary.

Drizzt said...

problems with singpost are fundamental. sph singpost and the telcos you have to watch really carefully.

web2.0 and telco2.0 brings great challenges and opportunities. it could make or break them easily.

for investors like us you will see most likely margin erosions across all three. looking forward they don't make great investments.

la papillion said...

Hi Drizzt,

I agree I agree. Definitely will affect their business somewhat. But there's this last mile monopoly for singpost that is hard to break. Not sure if you've heard of condos refusing other mail distributors to enter (they only recognise singpost). I would say the business would stagnate, it won't go much higher unless their overseas ventures succeeds wildly. haha

Grey said...

Weow.... Isn't it frustrating to have to key in the order everyday when a GoodTillCancel allows u to do it once do it good? But alas... there's no such thing in SG yet;

JKfund said...

For dividend play, my choice is at Starhub, yield for me per year now is 10.5% (when i bought at $1.90), excluding the capital gain.. :)

Drizzt said...

wish i have starhub at 1.90. you are a smart dude.

la papillion said...

Hi Grey,

Indeed. The order system here is quite pathetic compared to those found overseas. Primitive and rudimentary.

la papillion said...

Hi JKfund and Drizzt,

Haha, I too had starhub at 1.9+ but I had it as a trading position. I sold off to get a nice capital gains but didn't keep it for dividends. On hindsight, I ought to keep it..haha, oh well :)