When it comes to stock picking, one of the key criteria in evaluating the performance of the managers is how they deploy or handle cash flow within the business. For example, they may choose to use cash to reduce company’s debts, acquire other companies, buy-back shares or reward shareholders with dividends. Most investors, especially minority shareholders, would prefer the company to pay out dividends because it means a form of passive income for them. My favorite stock is k1 Ventures, one of the largest venture capitalists listed in SGX.
I have been tracking k1 Ventures for more than 10 years and had invested in the stock over the years. k1 Ventures is an investment holding company invested in diverse sectors such as finance, transportation, education and oil and gas. Those who are vested in this counter would know that this is an excellent stock which had paid out huge dividends over the years. Since FY05, it had consistently paid out dividends and if you had bought the share then and hold on to them till now, you would have an incredible yield of about 70%! Now, how many stocks in SGX are capable of giving this sort of dividends nowadays? Currently, I am not vested in this counter but am still tracking the company’s development for future investment opportunities.
Now, why is it important that a company has a history of dividend payouts? One thing for sure is that having dividend payouts mean that the company is willing to share the fruits of its labor with shareholders. This approach sends a strong signal to the market that the management is willing to reward investors’ faith in their company instead of keeping the money to themselves. In addition, having a track record of dividend payouts mean instilling a form of discipline on the management because investors would expect dividends consistently over the long run. So to meet the stakeholders’ expectation, the management has to deliver results consistently and use cash prudently in order to satisfy the shareholders. But I think most importantly, a company that has a sustainable dividend policy would be able to retain shareholders’ loyalty. This would in turn help to reduce stock price’s volatility because investors are unlikely to dump shares during market corrections.
Over the years, I have made money from k1 Ventures through the cash reductions exercises and generous dividend payouts. Many investors mistook this counter as a penny stock but in actual fact, the management has a solid track record as a venture capitalist. Generally, it took about 5-7 years for them to reap the harvest from the companies which they invested in. Some of the investments which they had divested away included McMoran Exploration Company, Helm and China Auto Grand and they had rewarded shareholders with generous dividend payouts.
The China Auto Grand’s divestment was announced on 29 December 2014 and the company received $32million in cash from the sale. Given the company’s track record, I think another round of dividend payout may be on the way. Not vested at the moment.
Within Singapore’s investment bloggers’ community, there are a few bloggers with impressive portfolios providing them monthly dividend incomes of up to thousands of dollars. Some of them invested in different companies and so are able to receive dividend on a monthly basis. One example would be Lady You Can be Free, who grew $112k into $1million in 7 years and generate dividend income of $50k. I like reading her blog because she regularly updates her dividend incomes received and I also tracked some of the stocks which she invested in.
What are your champion dividend stocks and do you follow any of the fellow local finance bloggers? Look forward to your sharing!
SG Wealth Builder