Why the fuss about dividend yield and debt free status

deepsa52 · #11 3rd December 2007, 07:10 PM

Quote:

Originally Posted by ravi_s_ghosh

http://www.traderji.com/fundamental-...-screener.html

As I am new to Indian markets , please correct me if I am wrong. To me the links posted as fundamental screeners come nowhere near useful for any serious stockpicking.
There are a ton of stock screeners for the US markets that allow more sophisticated screening , for example:
I want stocks with MktCap of $400 to $1000 million, with range of values for p/e, p/s , p/b, ROE , sales growth, EPSgrowth%, and trending upwards, for example price 30 days ago > price 90 days ago.Typically you would also be able to backtest returns using predefined holding periods, say 60 days and then rebalance.
If there anything with capabilities like this , please let me know. If not, please let me know of affordable fundamental data feeds ( paid or free ) weekly or end of day, probably I will think of writing a limited use version for myself.
This seems to be an uncatered niche and one can hope to hugely outperform relatively inefficient Indian markets with systematic stock picking.

Cheers!!

oxusmorouz · #12 3rd December 2007, 07:17 PM

Quote:

Originally Posted by ravi_s_ghosh

We often hear that so and so company has a good dividend yield and hence is a good buy. When a company is paying dividend after coughing up dividend distribution tax, it implies that the company is unable to utilize the cash to generate higher returns and/or the companies doesn't have enough ideas to expand their business. If a company does not pay dividend and utilizes it for returns, then certainly that will reflect on its market price. So why people run behind such high dividend paying companies?

It depends on the internal rate of return generated by the company and the prevailing real rate of return available to a "normal" shareholder. Companies in early growth stages (working in less competitive or untapped arenas) with significant scope for sales (thus profit) expansion will naturally prefer to retain reserves, because the average shareholder earns less through dividends than what he could earn if the amount is reinvested back into the business (adjusted for present value and liquidity premium). Vice versa.

Quote:

Originally Posted by ravi_s_ghosh

Secondly, it is known fact that debt is a great thing to leverage return on equity. Here is a simple example. Suppose there are 2 identical companies which have everything same with cost of setting up and running the company being Rs 1000 and operating profit being 20%, Rs 200. One is debt free with equity of Rs 1000 and another with Rs 400 of equity and rest Rs 600 of debt at 15% annual interest. Here is the comparison.

Cost of project: Rs 1000

All Equity Rs 400 equity + 600 debt @15%
PBIDT: 200 200
Interest: 0 90
PBT: 200 110
Tax @40%: 80 44
PAT: 120 66
ROE: 12% 16.5%

Clearly, the second company with debt is better since it gives higher return on equity of 16.5%. So, why there is so much of fuss about a company being debt free since being debt free simply means it is unable to leverage to give higher returns.

It again depends on the type of company using debt. Companies dealing in a cyclical,organized, market will face significant fluctuations in earnings over a given (long) period if leverage employed is more than necessary. A sudden and drastic drop in price of the commodity and lead to the bankruptcy of the company.

All Equity .................................. Rs 400 equity + 600 debt @15%
PBIDT: -200 .................................. -200
Interest: 0 ................................ -90
PBT: -200 ............................... -290
Tax @40%: 0 ............................... 0
PAT: -200 {CF} .............................. -290{CF}
ROE: -20% ................................... -72.5%

Equity (Beg): 1000 ......................... 400
Loss : 200 ......................... 290
Equity End : 800 .......................... 110

Consider year 2:
All Equity(800} Rs 400 equity + 600 debt @15%(174)
PBIDT: 200 .......................................... 200
Interest: 0 ......................................... (90)
PBT: 200 ........................................ 110
Loss CF: (200) ........................................ (290) {CF of -180}
Tax @40%: 0 ....................................... 0
PAT: 200 .......................................... 110
Final Equity: 1000 ......................................... 220

In scenario 1, the result would be a break even whereas in scenario 2, the result would be a drop of 45%. One more such a cycle could wipe out the company in scenario 2

ravi_s_ghosh · #13 5th December 2007, 08:08 AM

@oxusmorouz,

That was a great explaination, really awesome.

deepsa52 · #14 5th December 2007, 09:46 PM

Ravi, oxusmorouz and co, I would appreciate if you can provide me some information on reliable, upto date and affordable fundamental data feeds ( for the retail investor ), and on fundamental multifactor screening and backtesting software if available for Indian Markets. ( I understand that some of the ratios I mentioned earlier can be calculated if the engine has an API or a proprietary language )

I want to combine both fundamental data and basic price momentum factors such as MAs-intraday data is not important for me.
What would be your recommenation to go about this ?
Thanks,

oxusmorouz · #15 6th December 2007, 06:26 AM

Quote:

Originally Posted by deepsa52

Ravi, oxusmorouz and co, I would appreciate if you can provide me some information on reliable, upto date and affordable fundamental data feeds ( for the retail investor ), and on fundamental multifactor screening and backtesting software if available for Indian Markets. ( I understand that some of the ratios I mentioned earlier can be calculated if the engine has an API or a proprietary language )

I want to combine both fundamental data and basic price momentum factors such as MAs-intraday data is not important for me.
What would be your recommenation to go about this ?
Thanks,

I'm afraid I have no idea about this.

beginner_av · #16 6th December 2007, 03:59 PM

no fuss...just dividend arb!

ravi_s_ghosh · #17 6th December 2007, 06:39 PM

http://www.investarindia.com/
Let me know ur experience with investar. I have not tried it, but people say its good.

www.stockhive.com
Good data but no screening facility.

deepsa52 · #18 6th December 2007, 07:06 PM

Quote:

Originally Posted by ravi_s_ghosh

http://www.investarindia.com/
Let me know ur experience with investar. I have not tried it, but people say its good.
.

Investar site says :
* Choose from over 30 Pre-defined Scans based on Technical Indicators, Candlesticks and Fundamental Criteria and get new stock ideas everyday.

They don't mention about custom scans, I am enquiring with them.

deepsa52 · #19 7th December 2007, 06:13 AM

Quote:

Originally Posted by ravi_s_ghosh

http://www.investarindia.com/
Let me know ur experience with investar. I have not tried it, but people say its good.

No custom scans for Investar..guess not many people want this.

ravi_s_ghosh · #20 7th December 2007, 06:58 PM

Quote:

Originally Posted by deepsa52

No custom scans for Investar..guess not many people want this.

let me know if that is possible.