A Matter
of Dividends
I came across a recent posting : The best run companies do not pay a single dividend. Even if I did not bother to open and read about
it, I would have assumed the issue is about good companies that keep on making
profits and ploughing it back for more growth in whatever areas and in return,
create more profits and the process keep going on.
Investors of these so-called best run companies would just have to bite
their teeth investing in these companies faithfully for many years hoping that
their patience would be rewarded with a consistent appreciation of its share
price.
A company that comes into mind is Warren Buffet's company, Berkshire Hathaway, Inc. I believed this company
is one of those rare breeds that DID not pay a single dividend at all yet its
share price keeps on going up and up along the years.
Berkshire Hathaway holds sizeable stakes in several good fundamental
companies that ironically pays out good dividends to its shareholders! So with
all the dividends flowing back to Berkshire Hathaway, the management must have
used some of it to buy into more shares in more viable good companies trading
at reasonable prices or at depressed price especially during crisis times.
How many companies can you think off if one is to look at our companies
on Bursa Malaysia? I could not think of one.
Nevertheless, there are many types of investors with some looking for
reasonable good dividends and some who could not be bothered if the company
doesn't pay at all or only a pittance amount.
But dividends matter UTMOST to me when it comes to buying shares of a
particular company. The dividends come in pretty handy over the years and one
must be rather sharp in identifying such companies.
The consistent flow of dividends if collected over a period of times
could be a huge amount, sometimes even surpassing your original capital cost of
investment.
Three such companies that I have been most lucky enough to invest over
more than ten years ago are Fima Corporation Berhad (Fimacor), Keck Seng (M) Berhad and Harrisons Holdings (M)
Berhad.
The dividends received over the ten years easily exceeded my original
capital cost and yet the companies's share price also appreciated massively and
also the companies continue to dish out reasonable good dividends.
I called them my "money-good sons" of Bursa Malaysia.
It is like you bought a house, then after ten years of collecting the
rental which exceeded you capital cost, you continue to receive rental again
for the years to come and at the same time, the house is under your ownership
100%!
Of course, I also holds stakes in other good companies (that has yet to
be discussed in my blogs) that has been paying good dividends for several
years.
Pioneer investors of Public Bank and its siblings London Pacific Insurance
would never agree that these two companies making great profits year after year
should keep the money and do not share it with them.
Imagine you invested for decades and do not receive a single sen! I
wonder how many senior veterans would still be keeping the shares then.
And then during those period of world crisis, the shares prices
experienced sharp downtrend and the investor must be really sweating and
cursing it like hell at those moment wondering it would still be wise enough to
cling on to the share or sell it while there is still a good price for it.
Another risk is that when a company (that does not pay any dividend at
all) that makes profit year after year and seeing its cash hoard increasing,
decides on an merger or acquisitions exercise and when it does not work out,
resulting in heavy losses. The company continues to plough its reserve cash
into the new loss making companies hoping that it will turn around. And then
not only did it not turn around, it continues to suffer losses which eventually
takes its toll.
Such scenarios are real. You would have heard that many people advise
that money in one's own hand is better
than money is someone's else.
That is why I have always like to invest in companies that share out its
profit with investors as long as they make profit on that particular year!
Always expect the unexpected
There are sometimes many surprises when it comes to dividends
announcement from companies on Bursa Malaysia.
One of my favourites, Mercury Industries Berhad which has been
announcing dividends payments in May for the last three consecutive years
"shocked yours truly" with a no dividend payment this May.
I had placed great hopes that Mercury would at least announce an 8 sen
dividend after a strong 1st Qtr 2015 set of earning results of 4.57 sen.
Annualised this and we are looking into an earning per sen of around 18 sen for
2015!
Maybe Mercury is trying to conserve its cash since it would be going
into construction business soon as part of diversification plan.
While I was disappointed with Mercury, I had expected another of my
favourites, Harrisons not to declare any dividends for year 2014 since it
was using its earnings (2014) to pay for its settlement with Kastam DiRaja
Malaysia .
Instead,
Harrisons "pleasantly surprised" yours truly with a dividend of 15
sen payable on Aug 18. This will be the 11 years of consecutive dividends payment to shareholders since my first
purchase in 2004.
And
going by its commendable 1st Qtr 2015 results of earning of 7.82 sen, another
15 sen dividend looks also very likely when 2016 comes.
See,
dividends matter a lot.
