Three things about Baker Technology Limited

Recently I chanced upon this stock called Baker Technology Limited and decided to do some research after a fellow blogger claimed that this is a good investment. Usually I am fairly skeptical on penny stocks in SGX because good ones with growth potential are far and few. Most of them are either overvalued or simply trash stocks not worth mentioning. But just out of curiosity, I decided to do an evaluation on this stock.

Dividend Stocks
In light of the low interest rates, one of the favorite strategies in recent years is to invest in stocks that consistently pay out good dividends. For those who invested in Baker Technology Limited, this investment may look like it fits the bill as a classical dividend stock. In 2013, it paid out $0.10 of dividends and this year May, it will pay out $0.05. So if you had bought the stock at $0.45 in April 2013, the yield would have been 33%. Not a bad return for a small cap stock. But if investors are discerning enough, they would have noted that the company only started dishing out dividends since 2009. To be honest, five years of dividend track record seems a bit short and it is still early days to deem the stock as a “dividend stock”.

Rationale for dividends
Many investors would thought that any forms of dividend payouts indicate that the company is in good financial shape. This may not often be the case. Many companies sell off their assets and return the proceeds to shareholders in the form of dividends. Whilst you may think that there is nothing wrong with company returning money to shareholders, you need to realize that a good company with growth potential would not be disposing and selling stakes in their subsidiaries. For Baker Technology Limited, investors need to note that since 2010, the company has sold its stakes in PPL Holding, York Transport Equipment (Asia) and Discovery Offshore S.A. The resultant dividends and large cash holdings are a resultant of these investment disposals. Investors should know that going forward, the company could not possibly keep selling its assets to boost its profits. In fact, FY13 profits dipped an alarming 77% compared to last year. Therefore, in the foreseeable future, dividends for Baker Technology Limited should be lower, estimated to be at $0.01 per stock.

Capital Reduction
So at the end of the day, is this stock worth investing? My answer is a straight no. The blogger probably bought the stock in April 2013 in order to qualify for the $0.10 dividend payout. Shortly after the dividend pay out, the stock price dipped to $0.35 and below. It has not recovered since. After May 2014’s $0.05 dividend payout, the price may potentially drop further to $0.25. So effectively, after collecting the dividends for these two years, the blogger might still suffer a paper loss of $0.01 per stock. The only consolation is that this is a safe stock to park your money as it has no debt. So if one day it decided to declare a capital reduction and return part of the $200 million cash holdings to shareholders, then investors stand a chance to make a good investment return. But then that is only a big “if”. Until then, the blogger would have his monies trapped in the stock, so is it worthwhile to take the plunge for the sake of collecting the dividends? You can draw your own conclusion.

Frankly speaking, if I have the cash, I would rather invest in gold bullion. As a matter of fact, my investment in bullion has rose 10% within 6 months. I think going forward, the outlook for gold is stronger than equities.

Magically yours