Dividend growth investing

[Mr.G]

also Ghanisht
can u share the av div yield for all the stocks you hold
also you said that u dont want to invest in growth stocks
does that mean that dividend yield stocks that you are holding are not growing??
suppose if a particular sector has 2 such stocks (div type)
example oil india and ongc
which stock you would and why
just dont tell ongc coz its leader
oil india also gives good div.....

I ment purist growth orientation, who believe in growth at any price. Yes my buys do infact increase in capital appreciation BUT my main focus both in valuation and investment has been to see CONSISTENT and not fast growing earnings. As my entry criteria is value oriented.

After a crash a stock worth 100rs giving 5% dividend crashes to 50rs and is giving 10% dividend now,

My focus is that it's earnings should be consistent enough that it keeps giving me 10% for a very long while. I couldn't care less if it even moved over 50rs in that while.

As my main focus is to build a consistent dividend stream. It's just icing on the cake that it rises over rs.100, that is just a good for me moment.

I am not a big fan of diversification and i do bottom up analysis. So I dont care if I have 2 companies in one sector. As long as I am not over-invested in them. I never invest in commodity based companies BUT I do invest in OIL ( just a personal bias) I do have ongc in my portfolio.

I had posted my portfolio a few pages back, You can check my holdings from there. Frankly I don't care about capital appreciation if my buy is dividend oriented. But if I buy something based on value orientation. I want a quick capital appreciation back to its intrinsic value.

I dont track OIL, Can I revert to you as I can then compare them over the weekend and give you a thorough answer?

If you have a doubt in anything Il be happy to explain more. At Least there is some life on this thread. I can explain more, why I dont like growth stocks and why I prefer value buys and all that if you guys want.

 

[Mr.G]

Hi Mr. G,

nice information posted. thank you.

for long term purposes:
stuck with the dilemma about investing in stocks Vs. ETFs

when you get time, pl share your thoughts.

It all comes down to personal choice. The basic fundamental analysis for a professional is based of 4 factors, The person, Time, Price and the type of security in question.

I have given an article on asset allocation. Read the insured base method. I suggest that you put most of your money in guaranteed securities. And use the rest to build a high quality dividend portfolio. Please remember, that the original use of investing in stocks was NOT capital appreciation, it was getting the dividend from the corporation. You might argue why dividends yields are always so low? They are low because even though dividend is high, the stock price also increases to match the growth of the business. So dividends give the illusion of being low, but infact they are quite high.

Secondly, Please use this only for long-term view where you can see the magic of compounding dividends work. And please invest with a cheap valuation in mind first. If there are no good buys in the market. Invest the equity part of the portfolio in a recurring deposit. You can use the DP money to invest in the best valuation stocks. Then repeat till rich. Dividend bearing stocks are superior to common stock.

Beware there are bad lemons in even the best orchids to invest carefully. AND FOR GOD'S SAKE DON'T USE SIP METHOD! YOU LUMP SUM INVESTING ONLY!

 

[Gandhar.]

I ment purist growth orientation, who believe in growth at any price. Yes my buys do infact increase in capital appreciation BUT my main focus both in valuation and investment has been to see CONSISTENT and not fast growing earnings. As my entry criteria is value oriented.

After a crash a stock worth 100rs giving 5% dividend crashes to 50rs and is giving 10% dividend now,

My focus is that it's earnings should be consistent enough that it keeps giving me 10% for a very long while. I couldn't care less if it even moved over 50rs in that while.

As my main focus is to build a consistent dividend stream. It's just icing on the cake that it rises over rs.100, that is just a good for me moment.

I am not a big fan of diversification and i do bottom up analysis. So I dont care if I have 2 companies in one sector. As long as I am not over-invested in them. I never invest in commodity based companies BUT I do invest in OIL ( just a personal bias) I do have ongc in my portfolio.

I had posted my portfolio a few pages back, You can check my holdings from there. Frankly I don't care about capital appreciation if my buy is dividend oriented. But if I buy something based on value orientation. I want a quick capital appreciation back to its intrinsic value.

I dont track OIL, Can I revert to you as I can then compare them over the weekend and give you a thorough answer?

If you have a doubt in anything Il be happy to explain more. At Least there is some life on this thread. I can explain more, why I dont like growth stocks and why I prefer value buys and all that if you guys want.

good i am also learning a few things

btw i just wanted to compare two sector giants with handsome divs both growing almost @ same pace
how would chose the right stock or divide the money in them or just 50-50 ::lol:
what would you prefer if you have to chose from public sector or private sector

i have seen the portfolio i too hold some of them

and dont forget to tell about value traps
how do you scan the
financials stocks by pe or by pb ratios?
consumer related stocks by p to sales or pe?
IT companies?

 

[Mr.G]

good i am also learning a few things

btw i just wanted to compare two sector giants with handsome divs both growing almost @ same pace
how would chose the right stock or divide the money in them or just 50-50 ::lol:
what would you prefer if you have to chose from public sector or private sector

i have seen the portfolio i too hold some of them

and dont forget to tell about value traps
how do you scan the
financials stocks by pe or by pb ratios?
consumer related stocks by p to sales or pe?
IT companies?

You have given me lots of homework the weekend and some good content ideas for my blog!

To answer what I can RIGHT now, If you have seen my portfolio I prefer public sector firms as they get special treatment from the government (eg,tax)

I already gave how I find good stocks. Look around your house for products you use! They are the perfect stocks it invest in!

I dont actually scan for stocks. I just sit on my screen and look at random stocks. If something looks nice to the eye then I go deeper. I am starting a valuation series where I will give different valuation methods that I use and dont use. And where to apply which one. As one method cant be used for all stocks.

 

[Mr.G]

In my previous post I explained what exactly is a value trap. In this post I will tell you the different types of value traps, And some common signs that a stock might be a value trap.

Earnings/Book Value Ratio Trap: This is the most common value trap. As the price of a stock in the market falls it starts looking like a good value buy compared to it’s book value.

But in these stocks the price drop is due to drop in earnings over time and book value evaporates with the fall in earnings. As the earnings make yet another crash the stock looks like value buy another time, In this manner both book value and earnings keep evaporating and the novice investor keeps on buying.

Asset-Based Trap: These are famously called cigar-butts in the financial community. These stocks look exceptionally cheap in terms of asset valuation. In some cases asset based traps emerge when a high growth hot stock fails and crashes.

This is usually when a stock reverses to into long-term earnings potential. These are just corrections to its mean which look like value buys.

Always look out for:

A long-term down trend- A company that has bad fundamentals is in a long term downward trend. Irrespective of a further crash we should expect the price to go further down.
An Old Business Model- The Company might be serving a demand that no longer exists. Or there are better products and competitors in the market.
Liberal Financing- A Company that runs amok with its books is bound to fail. Look for high amount of debt on the company’s balance sheet.
Bad Governance- Even a good company can be driven into the ground if the manager is irresponsible or immoral. Some companies also keep majority shareholders (usually also high executives in the company) happy at expense of the common shareholder.
Rapid Expansion- If the company has gone on a recent shopping spree chances are that it has a very high amount of goodwill on the balance sheet. This is money that is not actually there and will be amortized and value of the company will be evaporated.


If a stock you are considering for investment is showing a majority of these signs, I suggest that you stop right there and look for another investment.

http://ghanishtnagpal.com/beware-value-traps-part-2/

 

[Mr.G]

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[DanPickUp]

There is someone who polled that my thread was is not useful.

That person voted already a few days ago and you know that. So what is the purpose of your above comment? If you do not like critiques, then do not post the no question in your poll. As simple as that.

By the way: Today you got an other poll that your thread is useful. Guess who did that? :thumb:

Now please move on with what you do in a very good way and do not come up with such childish post like above.

Take care and have a nice weekend / DanPickUp

 

[Mr.G]

That person voted already a few days ago and you know that. So what is the purpose of your above comment? If you do not like critiques, then do not post the no question in your poll. As simple as that.

By the way: Today you got an other poll that your thread is useful. Guess who did that? :thumb:

Now please move on with what you do in a very good way and do not come up with such childish post like above.

Take care and have a nice weekend / DanPickUp

Thanx Friend. Whenever I see your name in my thread then it sends a chill up my spine thinking ki "Abhi daant padhi vapas"

 

[Mr.G]

The Art of Stock Valuation – 5 Methods that Work

One shoe does not fit all and new investors have a myth that one valuation model can be used for all companies. That is not true. We must use a valuation model that is compatible with the company being analyzed.



Net-Net Working Capital / Graham Valuation Method
This is utilized the balance sheet as a source of major information.

It can be used in companies from basic/ heavy industries. It does not work for companies that have a lot of intangible assets, eg IT.
This is the old-school method of valuation, from an archaic time when only industrial businesses existed on the market. It was developed by my teacher and father of value investing Benjamin Graham.

Investing in companies trading below their liquidation value is the pinnacle of deep value investing. Such companies are called net-nets.

Net Net Working Capital Formula

NNWC= Cash and short term investments + (0.75*accounts receivable) + (0.5* inventory) – total liability



Replacement Cost Method
It uses the balance sheet for majority of the information.

It can be used to find out the cost it will take to reproduce value of the assets of a company. It is one of the most accurate and most intensive methods of stock valuation. It can be used to find the moat or advantage a company might have over other competitors as well as the value of the business. Famously used by Harshad “The Big Bull” Mehta to justify price of ACC ltd.
A full introduction of this method will be made on a later date as it is out of scope of this article.


P/E Model Method
It is the method used by most brokerages to give “reports” to clients.

It is a robust method that can give an approximate value of a company with respect to its P/E ratio. It determines the value in relation to earnings growth rate, dividend yield, business risk, financial risk and earnings predictability.
P/E Model Formula
P/E Value= Basic P/E * [1+(1-business risk)]*{1+(1-financial risk)]*[1+(1-earnings predictability)]
I am skeptical about this method and suggest that you use it as supplement to other methods. I don’t use it.

http://ghanishtnagpal.com/art-stock-valuation-5-methods-work/

 

[Mr.G]

This is continuation of “The Art of Stock Valuation – 5 Methods that Work”

Discounted Cash Flow Method

This uses cash flow to analyze the company.

It can be used for companies that generate a lot of consistent cash flow. It can be used for any blue chip with predictable cash flow.

This method has been given the reputation for not being good. This is just due to the use of DCF on companies that are not compatible with it. And abuse of the inputs till they suite the investor.

It is a perfect method to be used on cash cow companies and will give accurate valuations if the inputs are realistic and are not changed till the valuation suites the investor
.
Discounted Dividend Model

This is a close cousin to the DCF method. We use dividends flow as a factor instead of FCF. Dividends are more consistent than earnings and are easier to predict in the long-term.

This method is suitable for all companies giving a consistent dividend, so this covers more companies than DCF method.

This is my method of use for most dividend buys. I use the Gordon Variation of the Discounting Methods.

Gordon Variation

Both DCF and DDM, take a fixed growth rate till infinity. As this is not possible. The Gordon variation uses two, growth rates.
The first growth rate of “n” years and then a different/lower growth rate for infinity.
The flaw in the original and Gordon variation is that no company can grow for infinity time. Thus the conservative investor is advised to take the long-term growth rate as “zero”

http://ghanishtnagpal.com/art-stock-valuation-5-methods-work-part-2/