Value or value Trap in Worldwide: Part V

The following are some issues raised in the shoutbox by one NewBee.

Although the IP address of both NewBee and KingPin is suspiciously close, nevertheless, I will still answer the questions raised in good faith.

• Are you saying when buying shares, dividend is not a big issue to consider?

Nope. I did not say that, did I?

A company that is making good money and is willing to sharing its good fortunes by distributing the earnings back in the form of dividends is simply desired by all investors. Yes, dividends are of course important. But as an investor, we want to minimise as much as possible the risks involved when we invest in a company. For example, can we safely assume that a company will continue to pay the exact dividends every year? We simply cannot. In our country, 'most' companies have their cycles of good and bad fortunes. And have we not seen good companies gone bad when the management embarks on poor corporate exercise(s)? To blatantly making such assumption will be putting our invested money at risk.

So what guarantees that the company will continue to pay out good generous dividends in the long run?

Me? Yes, although there is no absolute guarentees in any company but I still look for 2 things. These two issues act as my guide on whether I should stay invested or not in a stock.

1. A good business.
2. A management that can be trusted.

So what is a good business? Well, the most intelligent approach as suggested by Graham and Buffett is that investing is most-intelligent when it is business like. (blogged recently)

So how good a business is Worldwide? ( Take a look at the earlier blog posting: Value or Value Trap in Worldwide Holdings?

If you minus out the earnings contributions from Genting Sanyen... ask yourself... what has the management been doing from 1999 till now? have a look the table made again.

(If that is the case, perhaps one might want to do a new table with a column indicating this share of profit from Genting Sanyen... and of course add in a column indicating the net profit less Genting Sanyen's earning contributions!)




Does this look like a good business? Again, if you minus out Genting Sanyen profit, what have the mangement been doing all these years?

Second part, a management that can be trusted. As mentioned before, the theme park debacle. Or the recent issue mentioned about the murky dealings behind its subsidiary holding, Panaroma Worldwide, as reported in the Edge and in Malaysia Today.

How? Can we trust such a company? Can we trust the management that we will receive good dividend in the long run? What if the management embarks on another debacle project like the Sydney Theme Park?

Side track a bit.

Here's a good exercise.

On 27th June 2003, Insider Asia wrote this article.Worldwide Pt 2 – assured earnings, undervalued assets

Same old, same old. Assured earnings, undervalue assets.

Insider Asia recommended Worldwide at a price of 1.95. Today, March 2006, Worldwide price is less than 1.90.

total dividend received?

• in 2003... Worldwide paid 3 sen tax exempt... (paid in Aug 2003)
• in 2004... Worldwide paid 5 sen tax exempt... (paid in July 2004)
• in 2005... Worldwide paid a 5.6 sen gross interim dividend.. (paid in Jan 2006)

If one had invested in Worldwide since 2003 because it's earnings, has it been a profitable investment?

How?

Well.. it's up to you to decide such issues... and I for one do not have all the answers... which is why I blogged in a manner of a discussion.. always welcoming honest views and opinions... but sadly in our country there exist selfish scums who lurks in stock forums who are only interested in their own vested interests...

'Hail the greatness of MY stock(s) and Speak No Evil about what stocks I own' is their utterly disgusting attitude.

Sigh!

Anyway, All I am saying is that one should not discount such issues and pin their investment on blind faith that they will continue to receive such dividends in the long run.

• Or are you saying we should only consider the paid dividen and that the dividend that has been proposed but not paid is not a big issue and should be ignored? Is it correct to interpret dividend yield as being based only on paid dividend and omit the proposed dividend? You say your own interpretation of dividend yield is based on the dividend paid.If we base only on dividend paid and omit the proposed dividend, can we still say the dividend yield figure is correct and meaningful?

The interpretation of the dividend yield is simple in theory but complex in practicality.

In simple.. Dividend yield = dividend received / cost of investment.

Complexity. Take Worldwide.

1. If one had invested in say early Jan 2006 or end 2005, one would have received that interim dividend paid in Jan 2006. And if and if the investor continues to stay invested in Worldwide for that PROPOSED dividend, then the dividend received will be 5.6 sen + 10 sen = 15.6 sen. And the yield will be that amount divided by the price of investment.

2. If one wants to purchase now.. will the yield be the same? Will one get that 8.3% yield as suggested?

Well.. that 5.6 sen has been paid. So the dividend yield will be that PROPOSED 10 sen divided by the price of investment.

And in either case.. the dividend yield will depend greatly on the price that the investor (reader of the article) pays for the investment.

How?

For me.. I have always not bothered about talking about proposed dividends, mainly because I do not want to seen promoting the stock for my own vested interests. Such simplicity calculations is best left for the reader, isn't it?

And yes... what about corporate rescinding their corporate proposals? Not happened before? I do remember vaguely that back in 2002 or maybe 2003, there was an outroar over United Merchant Group (now known as ASCap) announcement over its proposed distribution of cash on one of the local newspapers. The company later acknolwedged that there was a mistake made on how much was to distributed back. Or what the incidents in India back in 2001 or 2002? I do remember reading multinational and well-known companies like Nestle India rescinding their proposed dividends.

Ahh.. again.. I AM NOT SAYING THIS WILL HAPPEN FOR WORLDWIDE...

All I am saying is this type of events happened before... and in the world of the sharemarket, where the banker is the corporate management and the player is us, it never hurts to be extra carefull.