Purchase: Tai Sin Electric

After selling off NeraTel, I shopped around for another company to take its place within my portfolio. Enter Tai Sin Electric.

A company selling cable and wire products, Tai Sin operated mainly in the South East Asia region. Looking at the financial report, Tai Sin shows remarkably consistent performances in the past 5 years, with revenue, Return of Assets, Return on Capital and EBITDA staying within a narrow band. While this might not be appealing to a growth investor, it shows a stable, matured company which allows for a stable dividend yield, ideal for an income investor like me. indeed, for the past 4 years the dividend has been a steady 2.1 to 2.2 cents per year, translating to a dividend yield of 6.92%. However one thing to take note of would be that the payout ratio has increased quite dramatically, from 22% in 2012 to 57% in 2015.

At the price of $0.33, Tai Sin shares are selling at a P/B and P/E ratio of 0.931 and 7.851 respectively, which are relatively cheap valuations for a stable matured company. Tai Sin also has no long term debt, which adds a margin of safety a la Ben Graham.

Business outlook for the company looks good, with the opening up of the Myanmar economy (new buildings etc), as well as projected increase in government spending on infrastructure and construction in Singapore. Buildings need electricity, and electricity requires cables and wires, positioning Tai Sin to make a good profit, should they secure projects.

In buying Tai Sin, I have loaded up on a company which in the near to mid term is likely to experience some growth, a dividend yield that is reliable, and a certain margin of safety. Doesn't hurt that the dividend yield in this case is higher than NeraTel's. Will be keeping an eye out for the stock prices and accumulate as and when weaknesses strike.

Vested with 2000 shares.

Cash or DRIP?

Readers have asked me how is it that I have odd lots (<100 shares) in my holdings of First REIT. That, my dear readers, is the result of Dividend Reinvestment Program (DRIP). As the name suggests, instead of taking cash payments for your dividend payouts, you choose to pump in the money back into the stock in exchange for shares. Not all companies have this dividend policy in the Singapore Exchange, in my holdings I have First REIT and OCBC as examples.

The advantage to companies with DRIP policies is that they won't have to give out cold hard cash to shareholders, conserving the cash for other uses. The disadvantage would be that the amount of outstanding shares increases, which might lead to dilution in Earnings-per-Share (EPS), lower dividend payouts in future (assuming no earnings growth) etc.

Advantages to the shareholders on the other hand, are that the shares offered in such programs are discounted from those in the open market, from around 3% for First REIT, to a whopping 10% discount for OCBC! This means that, assuming there's no change in the share price on the open market, you would have reaped a gain more than the cash payment would have been. In addition. this would also allow shareholders to accumulate stocks at a cheaper and faster rate. Faster, as the shares thus accumulated would entitle you to more dividends the next time round. For example, 1000 shares of OCBC would entitle you to 25 DRIP shares, giving you a total of 1025 shares. Future dividend rates would then be based on your 1025 shares instead. Assuming this continues on and on, the compounding rate would ensure high growth before long.

So now the question is, do we go for DRIP? Or would cash be a better option? I would say that it depends on the time frame in question. Personally, as I'm still working, and not financially burdened (kids, housing loan etc), and thus having no need of any excess cash, I would much prefer to participate in as many DRIP as I can, to take advantage of the cheaper prices offered, maximise the growth of my portfolio, and to shorten the time till my financial independence. Likely to continue with this strategy for as long as possible (5-10 years maybe?).

Sell: NeraTel

Neratel recently announced that they have come to an agreement with Ingenico Group S.A. to sell off their payments solution assets. This deal makes no sense to me given that their payments solutions wing is quite well established, and enjoys certain monopolies in neighbouring countries. Its also growing as a proportion of their overall revenues and profits, and part of the reason why Neratel was a compelling investment choice for me, with its stable income stream enabling the company to give a steady dividend to its shareholders. The other parts of Neratel's business in contrast have unpredictable income streams as they are largely based on projects, not ideal for an income investor like me. Sure, shareholders will be rewarded by the disposal of the asset, but its akin to killing the goose that lays the golden eggs.

It is likely that I would be disposing my shares, barring any further news between now and Monday. Thankfully, a recent price correction enabled me to reduce my average price to below 60 cents. With Neratel's price fluctuating between 69 - 70 cents, I am looking at capital gains of more than 20%. Not a bad investment if I could say so myself. Sadly I wasn't able to get more of their dividends though.

Now...what do I do with the spare cash....

Portfolio Update April 2016

Another month passed again. Nothing much happened, made some small purchases in Fraser Centrepoint Trust after shopping at Waterway Point in Punggol, as well as doing some research on the company. A defensive stock which I feel comfortable keeping through the likely recession coming soon. Also purchased shares in NeraTel and Hock Lian Seng to average down.

SGX:

Stock Name	Units	Cost	Cost (Per Unit)	Dividends Collected
First REIT	3267	$4,128.07	1.264	$198.92
Keppel DC REIT	1000	$937.00	0.937	$68.40
Saizen REIT	2000	$1,724.21	0.862	$2,201.60
iReit	400	$225.11	0.563	$11.41
LMIRT	700	$244.59	0.349	$17.76
Hock Lian Seng	2800	$1,146.67	0.410	$72.00
OCBC	400	$3,959.45	9.899	$54.00
ABF Bond Fund	300	$343.22	1.144	$7.95
KingsMen Creative	900	$754.80	0.839	$5.00
NeraTel	1300	$743.98	0.572	$7.50
Accordia Golf Trust	1500	$876.58	0.584	$20.88
AIMS AMP Industrial REIT	500	$659.65	1.319	$8.55
ST Engg	200	$563.35	2.817	$0.00
Singtel	100	$378.90	3.789	$6.80
Fraser Centrepoint Trust	500	$996.93	1.994	$0.00

Bought:

1000 shares Hock Lian Seng
600 shares NeraTel
500 shares Fraser Centrepoint Trust

Total dividends received: $572.94 (excluding special dividend from Saizen)
Dividends received in 2016: $98.97 (excluding special dividend from Saizen)
Yield on cost: 3.21%

NYSE:

Stock Name	Units	Cost /USD	Cost (Per Unit) / USD	Dividends Collected
Berkshire Hathaway	2	$271.45	135.726	$0.00
BP	3	$111.75	37.250	$2.37
Omega Healthcare Reit	6	$191.93	31.988	$2.37

Bought:

1 share of Omega Healthcare Reit

Total dividends received: USD$4.74
Dividends received in 2016: USD$4.74
Yield on cost: 0.78%

Portfolio Update Mar 2016

Portfolio update!!! Received the special dividend from Saizen REIT, still coming to grips on the loss of a great cashflow stock. Having said that however, some of the money was put to good use in purchasing some stocks to replenish the loss of cashflow. Will be keeping the unspent cash on hand for better opportunities should the market correct itself again.

SGX:

Stock Name	Units	Cost	Cost (Per Unit)	Dividends Collected
First REIT	3267	$4,128.07	1.264	$198.92
Keppel DC REIT	1000	$937.00	0.937	$68.40
Saizen REIT	2000	$1,724.21	0.862	$2,201.60
iReit	400	$225.11	0.563	$11.41
LMIRT	700	$244.59	0.349	$17.76
Hock Lian Seng	1800	$750.74	0.417	$72.00
OCBC	400	$3,959.45	9.899	$54.00
ABF Bond Fund	300	$343.22	1.144	$7.95
KingsMen Creative	900	$754.80	0.839	$5.00
NeraTel	700	$419.08	0.599	$7.50
Accordia Golf Trust	1500	$876.58	0.584	$20.88
AIMS AMP Industrial REIT	500	$659.65	1.319	$8.55
ST Engg	200	$563.35	2.817	$0.00
Singtel	100	$378.90	3.789	$6.80

Took out the market value column, since my goal isn't based on capital gains anyway.

Bought:

100 shares OCBC
200 shares Kingsmen

Total dividends received: $572.94 (excluding special dividend from Saizen)
Dividends received in 2016: $98.97 (excluding special dividend from Saizen)
Yield on cost: 3.59%

NYSE:

Stock Name	Units	Cost /USD	Cost (Per Unit) / USD	Dividends Collected
Berkshire Hathaway	2	$271.45	135.726	$0.00
BP	3	$111.75	37.250	$2.37
Omega Healthcare Reit	6	$191.93	31.988	$2.37

Total dividends received: USD$4.74
Dividends received in 2016: USD$4.74
Yield on cost: 1.0%

Achieving Financial Freedom

I would be the first to own up to being a lazy person, the rat race has never appealed to me in the way some of my more ambitious friends do. That is the primary reason why I am so eager to get into investing, with a heavy focus on cashflow generation, so that I can achieve financial freedom as soon as possible.

Having said that however, financial freedom doesn't depend on just having a healthy cashflow. I'm sure everyone has read about or known someone who commands a high salary, yet always seem to be in need of money, living from paycheck to paycheck and worrying about losing his/her job. This shows that, much much more than income, financial freedom is dependent on our expenses. Someone earning $2000, but spends only $1000, is more financially free than someone who earns $10000, but spends $11000.

Thus, in the spirit of this blog, I'll be posting both about investments, as well as ways to reduce our costs of living, so that readers can accompany on my journey to achieve financial freedom as well.

To put things into context, I am in my late 20s, not married but with a girlfriend, salary in the lower mid 4 digits, no car.

We'll see how the next few months go then :)

Why I'm not into the STI Index Fund

In recent years, index investing have become increasingly popular. Put in simple terms, index investing involves buying into an index fund exchange traded fund (ETF), which would replicate the performances of the specific index, such as Straits Times Index (STI), Standard and Poor 500 (S&P 500), either by actually holding shares of the companies, or through derivatives trading. Such funds are mostly low cost and passively managed, as fund managers only trades in the companies tracked by the index. Proponents of index investing tout its ease of investing, low management cost, and decent long term performance as some of its more outstanding advantages over actively managed funds. One such individual would be Kevin from Turtle Investor in Singapore.

However, to subscribe to this belief, such investors would also have to believe that the market is 100% efficient, and so to beat the market would be an exercise in futility. As value investors, we know that this is not true. We believe that the market is irrational, and opportunities can arise every now and then. 

Also, an advantage that index investors like to tout, which is that investors are able to own a whole basket of companies by just buying into a low cost ETF, is also its greatest weakness, especially in the local context. The S&P 500 consists of the 500 most successful companies listed in the USA, as such, doing research and keeping track on each and everyone of them would be tedious and unlikely to yield any proper results. However, the STI has only 30 companies, a manageable number by any stretch. Also, the STI does not consist of what can be considered 'successful' companies, but rather the 30 largest companies by market capitalisation. What this means is that not every company on the STI is a good company, just that it is a big company, and liable to underperform from time to time. For every DBS or Singtel on the STI, we have a Noble. Thus it would make much better sense to pick and choose the stocks within the STI rather than to buy them all at one go. This is especially after the advent of lot sizes of a 100 shares, as well as the low brokerage fees offered by Standard Chartered. By sifting out the bad companies from the STI, you would by logic have an advantage over index investors in terms of portfolio performance.

Do note that I'm not saying all ETFs are bad, in my opinion bond funds are great for retail investors, giving us access to bonds that would normally require and outlay of at least $250k in capital. ETFs which track a great number of companies, such as the aforementioned S&P 500 are great for the novice investors as well. However, given the relatively small number of companies tracked by the STI, as well as the numerous bad apples we can find within, I would recommend that investors avoid buying into the STI ETFs, and do their due research on what are the companies that deserve their capital outlay.

TLDR: Index investing is a low cost passive way to market performances and has risen in popularity in recent years. However, I would not recommend it in the local context as there are only 30 companies in the index and not all of them are good. Investors are encouraged to do their own due research to sift out the wheat from the chaff to maximise their chances of outperforming the market.