CPF: A good deal?

[PNGMK]

... as I'm wondering around my various spreadsheets this a.m. I came upon this old note, re selecting a stock...

'Take top three highest yielding share in each sector, and sift via these following criteria:
prospective yield >= 4% [mine currently are on 3.7-6.5%, net 5.4%, these things naturally ebb and flow, but you want 4% as an 'entry criteria']
prospective P/E <10>= £500m
dividend cover >= 1.2+'

That's the core of it. You can add 'Rising dividends for at least 3+ years', net 'Broker outlook' better than neutral, and so on, but already the above/latter are going to trim an index right down!

Sift with those criteria and the stocks pretty much pick themselves...


p.s. Oh and I'd add, consider carefully candidates that appear just too good to be true. Look into 'Directors Deals', and the past 6 months headlines. I.e. if something reputable is promising anything over say 6% I'd really want to be persuaded why.

... all the above applies directly to the UK market. But the general principles will carry over elsewhere, just you'd need to define appropriate local 'hurdle criteria'...

I always check payout ratio (i.e. can they afford to keep paying these dividends) and dividend growth and history.

Currently in Australia only two stocks satisfy my criteria CBA and FLT. carsales.com.au is close. CCA not far off either.

[Beeroclock]

I always check payout ratio (i.e. can they afford to keep paying these dividends) and dividend growth and history.

Currently in Australia only two stocks satisfy my criteria CBA and FLT. carsales.com.au is close. CCA not far off either.

A bit of a digression into Australian bank shares since you mention it and it's been on my mind....

I'm struggling with CBA, while performance has been clearly outstanding, it just seems so expensive now. Of course you need to pay for quality, but the recent handling of their rogue financial planning scandal, leaves me with a serious questionmark over the management. They are lucky they're not in the USA, they would be facing massive fines for this kind of incompetence and fraud, not that they seem to appreciate this at all. I just wonder if they are getting big-headed, arrogant, complacent. Because of the high share price, the dividend yield is the lowest at around 4.6%, versus the others above 5% and NAB above 6%.

As I mentioned I struggled to pick a preference of these big 4 banks. NAB has been a long-term poor performer, but currently appears good value buying and an excellent yield. ANZ has been pushing it's Asian strategy for 7 years now, but I don't really think it's been successful, e.g. I have an account with them here and their internet banking was broken and unable to receive transfers since last Friday, it only got resolved today! The analysts also question this strategy saying it is diluting their returns as they earn better margins domestically. Which kind of left me with WBC, the Steve Bradbury choice, last man standing, ... has performed very well recent years as per CBA, but doesn't seem to have much of a growth strategy, if any, to enable this trajectory to continue. The brand is nowhere near CBA's prominence in the retail/residential mortgage markets..... So after all this, I'm currently stuck at my default position - just buy all four, probably in equal weightings.

[PNGMK]

I always check payout ratio (i.e. can they afford to keep paying these dividends) and dividend growth and history.

Currently in Australia only two stocks satisfy my criteria CBA and FLT. carsales.com.au is close. CCA not far off either.

A bit of a digression into Australian bank shares since you mention it and it's been on my mind....

I'm struggling with CBA, while performance has been clearly outstanding, it just seems so expensive now. Of course you need to pay for quality, but the recent handling of their rogue financial planning scandal, leaves me with a serious questionmark over the management. They are lucky they're not in the USA, they would be facing massive fines for this kind of incompetence and fraud, not that they seem to appreciate this at all. I just wonder if they are getting big-headed, arrogant, complacent. Because of the high share price, the dividend yield is the lowest at around 4.6%, versus the others above 5% and NAB above 6%.

As I mentioned I struggled to pick a preference of these big 4 banks. NAB has been a long-term poor performer, but currently appears good value buying and an excellent yield. ANZ has been pushing it's Asian strategy for 7 years now, but I don't really think it's been successful, e.g. I have an account with them here and their internet banking was broken and unable to receive transfers since last Friday, it only got resolved today! The analysts also question this strategy saying it is diluting their returns as they earn better margins domestically. Which kind of left me with WBC, the Steve Bradbury choice, last man standing, ... has performed very well recent years as per CBA, but doesn't seem to have much of a growth strategy, if any, to enable this trajectory to continue. The brand is nowhere near CBA's prominence in the retail/residential mortgage markets..... So after all this, I'm currently stuck at my default position - just buy all four, probably in equal weightings.

CBA is the largest holder of mortgages. If they go down so does Australia. You only have to look at the dividend growth (which is really what we are all after here) to decide. ANZ are overextended in their overseas growth strategy and I'm not sure NAB really recovered from their rogue trading scandal. Westpac doesn't seen to be that exciting.

[JR8]

dividend cover >= 1.2+'

I always check payout ratio (i.e. can they afford to keep paying these dividends) and dividend growth and history.
Currently in Australia only two stocks satisfy my criteria CBA and FLT. carsales.com.au is close. CCA not far off either.

Yeah that's that 'div cover' above. 1.2*+, 120%+. That's the minimum pay-out you want from the profits and cashflow. 1.5* is probably more 'comfortable'/optimal. But as you increasingly filter down a main index on these various criteria a lot gets excluded, and you do want to end up with the best say 15-25 candidates. There's no point filtering like a complete Nazi and ending up with nothing that's passed your tests that you can buy

Div growth. Yes before buying a stock, you want to see a 5+ year record of rising dividends. Cutters or suspenders will cut and suspend again... so be very aware of the likes of that ... A LTBH portfolio (long term buy and hold) is just that, preferably invest and forget. But once you find you have a 'cutter' then it's time to shed it fast as it's going to be toxic for probably 5 years+, and the value will have already dropped off a cliff by the time you've twigged that ... but pick right in the beginning, and such events should be very rare...

[earthfriendly]

Beerclock, all the best on your investing journey.

Slowly but surely the days of hefty fees are being eroded. Many firms will need to find new ways of making money? However, this will not affect Vanguard as much as it is structured differently as they don't face the same kind of conflict of interests of other financial firms. Bogle has his heart in the right place when he sets out to give the ordinary investor a fair shake.

"Bogle singled out rival fund firm BlackRock Inc and its chief executive, Larry Fink, as an example of a firm that faces a tension between needing to earn profits for its own shareholders and lowering costs for investors. While he admires Fink, Bogle said, "he has a real problem." "

"But Vanguard has an unorthodox structure in that the company technically is owned by the very funds it offers, and so by proxy, it’s owned by anyone and everyone who owns any of those funds. And thus, the company has a pretty obvious motivation to keep Vanguard funds so cheap: It keeps the owners happy!"


http://investorplace.com/2014/06/warren ... 76ee_ldXsY

http://www.reuters.com/article/2014/06/ ... JW20140617

[JR8]

This is why I like the DIY approach. I have no time for paying for this vainglorious wank-fest over each others' styles...

Bunch of complete tossers.

(And if you sign up, you're paying for it. Their children's school fees, the D10 condo you'll never afford, and wives handbag and shoe habits)

'Cheers!'

[Beeroclock]

prospective yield >= 4% mine currently are on 3.7-6.5%, net 5.4%, these things naturally ebb and flow, but you want 4% as an 'entry criteria'].

Hi JR8, when you monitor your yield, do you calculate it using the current share price or your historical purchase prices? I'm just curious because you mentioned before that you don't really track the capital growth side of it. Thanks

[JR8]

prospective yield >= 4% mine currently are on 3.7-6.5%, net 5.4%, these things naturally ebb and flow, but you want 4% as an 'entry criteria'].

Hi JR8, when you monitor your yield, do you calculate it using the current share price or your historical purchase prices? I'm just curious because you mentioned before that you don't really track the capital growth side of it. Thanks

That's a good question - and the subject of quite some discussion.

I don't pay heed to 'Forecast Yields'. If I plan to buy something and hold it for maybe 10++ years what this weeks view of 6 months ahead isn't of much help. So I look at what a stock has paid out in divs over the past year '/' the current share price. I.e. 'Current Yield'.

That also means that the yield at the time of original purchase becomes more or less irrelevant, and you're re-evaluating a stock periodically. I.e. if I put £1,000 into a stock, I want to know what the past year would have earned on that, any promised/forecast that's higher is just a promise until it's banked, so it's the actual track record that's counts...

Yes, the capital side of things is largely irrelevant, because if you're in it long term, the guaranteed periodic ebbs and flows are simply temporary occurrences.

[JR8]

To give a parallel.

I used to have a portfolio of about 22-24 stocks (I forget now precisely). Then one day a few years back, outside of those investments, I had to pay a whacking great bill, but I knew I'd get the funds back in a couple of years time.

All of those stocks I'd originally bought, had at the time of purchase each individually passed the entry citeria, i.e. Current Yield over 4%.

To pick the ones I had to sell I simply sorted for Current Yield and ditched about the bottom five. Those were either companies that had had a very good run up on the share price (since purchase), or are regarded as so low risk anyway (The big mining companies being classic examples, BHP/RTZ/Antofagasta etc) they feel no need to pay too generously.

Now the funds are going back in (progressively), and I'm taking the opportunity of moving slightly back up the yield-curve (seeking a higher yield income). So for example re: mining, out went BHP (aka BLT), and in came RTZ in it's place. Only maybe 0.5-0.75% higher div yield, ... but it all adds up as they say...