Portfolio Update - May 2015

*As of 31 May 2015

	Counters	No. of Shares	Average Price (SGD)	Total Capital Invested (SGD)
1.	None	N/A	N/A	N/A
	Cash Reserves and Equivalents			50,749.95
	Total SGD			50,749.95

Total Invested Capital = $0.00

Total Expected Dividends/month = $0.00

Average Dividend Yield = 0%

The month of May had been an unexpectedly eventful one, starting with the sale of Sembcorp Industries, for which reasons for doing so I have mentioned in an earlier post.

Noticeably, the large stake of Accordia Golf Trust has been liquidated, owing to the run up in share prices. I am still positive on AGT's potential, and I am ready to pounce on weaknesses in the share price in the next few months leading to the next distribution, likely to be announced in November. Till then, I am happy to have cash in my warchest, given the weaknesses in the STI of late. I have limited capital for investment, so every amount of cash in my warchest has to be put to use for maximum returns with a minimum invested period.

Thus, my motto for now is to be as nimble as possible, until I have accumulated enough capital for a longer term income investing purposes. What is the magic number then? Hmm, tentatively, I hope to achieve at least $150k before I can be comfortable to really invest into companies with greater fundamental potential. As of May 2015, I am about 1/3 the way there, and I hope to achieve the target by my 30th birthday. Till then, wish me luck!

A new brokerage account

Currently, I am using UOB Kayhian and iOCBC as my brokerage firms, well actually only UOB kayhian. Basically, I haven't really got down to using iOCBC ever since it was opened at a whim somewhere in end 2012, when they had some promotion with relation to lower brokerage fees. And so, ever since, I have been only using UOB Kayhian, no real reason why I am such a loyal customer, maybe its just pure inertia to change broker all the time.

Well, recently I came across an advertisement by Lim and Tan securities. It was pretty attractive I must say, comparing to the existing loyalty rewards of UOB Kayhian. This was the advertisement.

Basically, this year is Singapore's 50th birthday, and many business have been giving some discounts/promotions in celebration of SG50. All we have to do is to be a new account holder of Lim and Tan securities, make 3 trades with 3 months of account opening and we can have $88 worth of reward points credited. That is about free 3 trades or so, assuming $25 commission each trade. So buy 3 trades, get 3 trades free. And to further sweeten the deal, if the new account holder makes 3 trades within a month of opening, he/she will get an extra $80 worth of NTUC fairprice vouchers! So its true, $168 worth of rewards if we make 3 trades within a month of opening.

I decided to open a new account, largely based on the anticipation that I would most likely achieve the 3 trades in 3 months, if not the 3 trades in 1 month bonus. Assuming I were to make 3 trades, that will work out to be $75 in total of brokerage fees, and then if I were to execute them all within a month, I would be able to get $168 worth of rewards, quite a good deal I feel.

And so, yesterday, I made a trip down to Vivocity, where they were holding an SGX carnival, I think it was a My First Stock Carnival, and had my account opened there. I had actually planned to get the documents ready and mail it to them, but since Vivocity is near enough for me to cycle there (about 10km), I thought I might as well go down to get it done sooner.

With Great Discipline, Comes Great Compounding Powers

Some of us may have heard about the power of compound investing. For everyone's benefit, I shall illustrate this in this blog post, as I feel it is a vital aspect of learning how to invest.

To go about compounding your investments, we need to see investments as income producing assets, generating cash flows for us through distributions via dividends. In order to allow for compounding to work, we need to put this money from dividends to work. By re-investing our dividends into the same or other income generating assets, we have increased our income as a result of the larger investments made.

Let us have an example to illustrate its true power. In both scenarios, we see how long it takes to achieve a million dollars starting from a $10,000 investment.

Investment + Dividend Re-Investment

At Year 0, we decide to invest $10,000 into an asset yielding 8%, re-investing its dividends at the end of the year.

So we note that we need a minimum of 60 years for a million dollars to be generated, both in terms of total interest earned and the total net worth of the capital invested. The passive income generation would be a cool $6,750 per month.

But this takes 60 years, a way too long an investment horizon for many. Perhaps we could speed things up by injecting more funds annually.

Investment + Dividend Re-Investment + Injection of funds

At Year 0, we decide to invest $10,000 into an asset yielding 8%, re-investing all dividends and injecting a fixed $7,800 ($650 monthly) at the end of the year.

So we see the marked difference, just by setting aside an extra $650 from our salary per month, we can reach a full million worth in capital invested in just 30 years, half the time if we did not contribute at all!

Now we see the true power of compound investing and the rewards of being disciplined in saving and investing consistently through the years. Every single year and every contribution counts, so starting early gives us the critical advantage. Remember, with every delayed gratification, comes an even greater reward in the future. Good Luck!

Sembcorp Industries - An Uncertain Outlook

As we know, I have liquidated all remaining stake in Sembcorp Industries.

Here are my reasons for selling my remaining stake.

1) Fundamentals have changed significantly.

Weakness in Utilities Division

My optimism and bullishness in the Utilities sector was not realised, at least not until the next few years. The Utilities division was where I had pinned hopes on recovery for Sembcorp Industries, where I had hoped that the future growth in this division will compensate for weakness in the Marine division owing to the weaker oil prices. Expansion in emerging energy markets will take time for it to be realised in Sembcorp's earnings, so I would be better off deploying the cash to better dividend yielding counters while I wait for Sembcorp to show greater earnings visibility.

Higher Price to Earnings

Revenue was down 11% year-on-year and the more alarming issue was that net profit for this period slumped by 23% year-on-year. As a result, earnings-per-share (EPS) also reduced by 23% from 10.25 to 7.79 cents.

This will have negative consequence to the price-to-earnings (PE) ratio. The PE would now have been increased significantly of which I am a little more uncomfortable to be holding long term.

Negative Free Cash Flow

Cashflow from its operations was $152.1 million against its expenditures of $390 million, which largely means that for this quarter, Sembcorp has a negative free cash flow of $237.9 million, down from a positive free cash flow of $567 million a year ago. This is definitely not so good news for income investors like ourselves, so I would prefer to let things pan out further before considering to invest into Sembcorp Industries again.

Weaker Balance Sheet

A year ago, Sembcorp Industries can be touted as a net cash company which could serve as a dividend play as a replacement for REITs in the face of impending rising interest rates. Its balance sheet boasted a net cash position of $734 million. 

Fast forward to 31 March 2015, the company had $1.6 billion cash and $5.5 billion debt, i.e. net debt of $3.9 billion.

This is not so good news for income investors like myself looking for companies to replace REITs' income on their portfolio. Getting a debt-laden company is as good as sticking on to a REIT for its income, as it derives its income by taking on debt.

Uncertain Dividend Yield

The dividend yield, though decent, is also likely to be affected if persistent weakness in both divisions continue. Negative free cash flow this quarter is a bad start to the year and if it continues, it will certainly have an adverse impact on the stability of the dividend payout.

At the current 3+% dividend yield, I have considered carefully and given that the same money can be put into high interest yielding accounts like the OCBC360 at around close to 2% with absolutely no risks involved, I would definitely choose the latter.

2) Bumping up Warchest for other opportunities.

Definitely liquidating positions allow me to increase my Warchest to be more prepared to tap onto interesting opportunities in the market. Although the position is relatively small, the increase of cash in the Warchest would be very much welcome.

4) Reducing exposure to oil-exposed plays.

I have an increasing vested interest in an oil stock play as a result of working for an oil and gas MNC, which offers s stock plan for its employees. Thus, it is inevitable that my portfolio would would slowly be tilted in proportion towards the energy sector as I continue to work and contribute towards the stock plan.

Therefore, as part of a review and re-balancing of my portfolio, I have decided to divest Sembcorp Industries.

Conclusion

The situation facing Sembcorp Industries is very challenging one indeed, as it is facing competition in all fronts. The diversification which I had earlier believed to be the catalyst for further growth has proven to be affected by the oil market environment as well. Therefore, the reasons of wanting to invest in Sembcorp is no longer compelling as it was used to be, and I believe there is no further catalyst for growth, until perhaps when the power markets in India and China takes off. Rather than letting money sit around in a company with no immediate visible catalyst, I would prefer to divest and monitor from the sidelines at the moment. 

Please do note that this is entirely my take on this situation and a different investor may continue to hold the investment for its future growth. He/she may prefer to collect dividends while waiting for Sembcorp's investment in the emerging markets to take off. No one method is right, and each investor takes his/her own path to financial freedom.

As we know, the investment in Sembcorp Industries was essentially 'free', but if the situation warrants the sale of the assets, then I will not hesitate to do so. Therefore, in the meantime, this 'free' money will be recycled back into the Warchest, and will be deployed as and when the situation calls for it. 

The 'free' investment in Sembcorp Industries

My humble portfolio (as of 30th April 2015) consisted of a larger stake in Accordia Golf Trust and a much smaller stake in Sembcorp Industries. The smallish position was acquired earlier this year, when the SGX lowered the minimum lot size from 1000 to 100 shares. At that point in time, many brokerages were having discounts on their applicable commissions as long as you meet their terms and conditions.

So I took the opportunity to look for some shares which I would not mind holding a small stake in, which effectively means I have to be able to have confidence in holding it for the longer time horizon, while having a small enough stake so that the risk is comfortably managed. After looking through the market, it came across my attention that most oil-involved plays were heavily beaten down, given the dramatic fall in oil prices then.

Sembcorp Industries was trading at a P/E of about less than 10, while having a P/B ratio of slightly above 1. Furthermore, it has been consistently paying dividends of about 15 cents per share, which worked out to be a decent 3+% yield. From a valuation standpoint, it would seem decently fair valued, though not as good as a deal in the GFC and the major crisis levels, but good enough for a smallish stake. The impending Fed interest rate hikes would mean that I would also be looking for companies having the track record of being able to generate enough free cash flows over the years. Sembcorp Industries had been doing a fair job of doing so, and it is able to generate enough cash from its business to pay off its borrowings.

Sembcorp has 2 main business segments: Utilities and Marine. The oil exposed sector here would have to be the Marine business, which have seen some profits falling from the recent Sembcorp Marine's results, which probably was the main driving force of the selldown around the end of 2014. What I am more optimistic about is the Utilities business, which I feel have much more room for growth through overseas expansion into the main markets of power hungry China and India. It is clear management is trying to expand the Utilities segment, in order to diversify away from the oil-dependent Marine segment, which will remain the weakest link as long as oil prices stay low.

Singapore's Keppel Corp and Sembcorp Industries can been seen attempting to diversify away from oil dependent segments, preparing for a possibly long period of low oil prices. I had actually compared with Keppel Corporation attempts at diversifying out of oil by acquiring Keppel Land, its property arm. However, I am more bullish with the Sembcorp's Utilities segment than the Keppel Land's property performance right now, given that the property market is facing weak sentiments and there is no sign of visibility of a recovery just yet with the current weak global demand.

And so I took a smallish position Sembcorp Industries, which could be essentially be fully paid for by the realised profits I had earned from other investments for the period of 2014 and early 2015. I am currently still short of some cash to call it a 'free' investment, but I am expecting the maiden dividend from Accordia Golf Trust to allow me to achieve that easily. And of course, everyone loves a 'free' investment into income producing assets, in this case, an extra $10 a month of passive income.

However, upon the release of the results of Sembcorp Industries yesterday, my stance has turned negative, and I sold my remaining shares in Sembcorp Industries. Why the sudden change in stance? Wasn't I going for it in the longer time horizon?

Find out more in the next post.

How to better organise your life? (Part II)

Here is Part II of Life Hacks 101!

11) From crib to a table for your grown up child!

12) Use self adhesive plastic hooks to mount your ipad!

13) Problem with zippers falling down? Problem solved!

14) Put Lazy Susan in the fridge! Say goodbye to digging deep into the fridge!

15) Cool way to keep your laptop well ventilated!

16) Travelling budget and bored?

17) Can’t tear open packages?

18) Keep it clean!

19) Easy pea-sy!

20) AND more hacks..

That's all folks. I really do hope at least one of this life hacks made a difference to your life, one way or another.

In case you missed out, the below link is Part I of Life Hacks 101.

http://a-dividend-simpleton.blogspot.com/2015/04/how-to-organise-your-life-to-better-part1.html

OCBC changes the terms of the OCBC360 account again

And so, OCBC introduced the new 2 terms to the OCBC360 account which would take effect immediately on 1 May.

Here is a snapshot of the general changes.

OCBC360 new terms

So, here is my take on the new terms. Generally, I feel that the 1.2% for the salary credit is a good move in the right direction to give account holders a greater motivation to keep money in their OCBC360 account, that is assuming they are currently working with salary being credited to the account. This is very easily achievable along with with the pay 3 bills condition which allows us an easy 1.75% on our monthly balance.

As for the other terms, in my opinion, they are 'bonus' interest as they are not as easy to be achieved. I don't like the feeling of being forced to spend in order to achieve higher interest, which could prove to be counterproductive to our saving efforts. For some, it may make sense if they would spend $500 monthly anyway, so it would be recommended they charge them to their OCBC card in order to achieve the bonus 1%.

The insurance/investment terms do not make sense to me at all. Obviously, OCBC had to find ways to make money out of us in order to allow us to get another 1% on out monthly balances. This given that at minimum, we have to spend at least $2000 in order to achieve that extra 'bonus'. Definitely forcing us to spend in order to achieve interest, clearly a no no for me.

The interesting thing is the last term. It states you earn 1% on the incremental amount of your monthly balance. Basically, we need to consistently increase our monthly balance by the same amount in order to earn 1% on that monthly incremental amount. It amounts to a much more paltry sum than what we could earn from the other terms, but its definitely better than nothing. It also encourages account holders to save consistently, which is definitely a good habit to foster. Furthermore, since most account holders will be already crediting their salary, maintaining the salary credited amount as much as possible without spending too much would be rewarded with the incremental 1% interest.

Better? Well, not for me..

Personally, I will be attaining the 1.75%, as I would not like to spend in order to achieve the other terms. Perhaps when my spending increases, I might consider the credit card bonus. In addition, I will qualify for the incremental bonus, which would be a paltry sum, so I will not add that as the effective interest rate on my monthly balance as a conservative estimate. And so, I will be earning 1.75% on the funds in my OCBC360 account, down from 2.05% earlier. Oh well, at least its better than next to nothing in other saving accounts.

Portfolio Update - April 2015

*As of 30 April 2015

	Counters	No. of Shares	Average Price (SGD)	Total Capital Invested (SGD)
1.	Accordia Golf Trust	24200	0.7624	18,450.08
2.	SembCorp Industries	800	4.456	3,564.80
	Cash Reserves and Equivalents			25,993.14
	Total SGD			48,008.02

Total Invested Capital = $22,014.88

Total Expected Dividends/month = $132.41

Average Dividend Yield = 7.22%

As you might have noticed, I have sold off Cache Logistics Trust as it has run up in price, reaching close to the previous resistance levels for the stock. I decided to take the profits off the table and consolidate my warchest back to at least 50% of my total net wealth.

REITs remain a challenging sector, with the impending interest rate hikes from the Fed, the cost of running a REIT would only go in one direction now, and that is up. The interesting thing is, I have never held Cache Logistics Trust for more than 2 months and have traded it approximately almost 3-4 times a year ever since the second half of 2013, when the taper tantrum had just began.

So why Cache Logistics Trust and not other REITs? The idea for me is to look for REITs with a clear band of volatility where it is possible to buy in close or around the supports and selling closer to resistances. Be mindful that this band of gyrations do move with time and we have to be consistently monitoring the movement of the prices. The volatility has allowed for me to have much better prices of entry and exit as opposed to the buy and hold period of pre-taper tantrum. Cache Logistics Trust also has a high dividend yield payout which allows for greater gyration of movements during the results announcement period for REITs. There are much better yielding REITs than Cache Logistics, but the others had either too little movement or had poor business performances which limits the upside we can achieve. Do note that I had monitored the stock for quite some time before trading them to observe the patterns before going in with real cash, so I suggest perhaps trading with virtual funds before going in for real.

And of course, risk management is always important in any trade. Strict risk control, discipline and nimbleness are some of the many attributes a successful trader needs to possess. Good luck!