Learning investing/trading together part 3! (Let's learn about investment products!)
Note: Data are based on 2018 report, from yahoo finance and dividend.sg*
What investment are available?
Note: Data are based on 2018 report, from yahoo finance and dividend.sg*
What investment are available?
- Nowadays, there are many investment products on the market which can be quite daunting and confusing for the new investor. Understanding the different product as well as our own investment goals and risk appetite is important in determining the right investment approach for ourselves
- There are four common investment products that a new investor can potentially start off with, they are blue-chip stocks,exchange-traded fund(ETF), real estate investment trusts(REITs) and regular shares savings(RSS) to help you better understand which products would best suit your investing goals
What is a blue chip?
- Large and well-established companies with a history of stable earnings
- Typically refers to companies of quality and reliability and who have the ability to operate profitably in good times and bad
- From a financial perspective, blue-chip companies typically have: Market capitalization> $2 billion
- Business revenue > $200 million per year
What is a market capitalization?
- It is the value of the company trading in the stock market
- Market Capitalism = Share Price x Number of outstanding shares of the company
Did you know?
- Blue chip companies have worldwide business with an estimated 50% of the total revenue generated outside Singapore. For example, Capitaland(the company that own at least half the shopping mall in sg) has a vast global presence in around 146 cities across 27 countries worldwide, from Paris to Singapore
- Thai Beverage, a blue-chip company, owns famous brands like Chang Beer and 100PLUS. You can own a piece of their business with just $73(0.73/current share price * 100), that's the equivalent of 15 bottles of Chang beer
- If you had invested in DBS(the bank that every Singaporean has an account in)in the year 2015, you would have received an average dividend yield of 3.77 %. Compare this to a DBS savings account that pays up to 0.10% p.a interest in your savings
- The combined minimum investment in three well known blue chip counters-OCBC(the lesser popular bank, but still very popular), Singtel(the company where everyone sign contract for their phone with), and Keppel Corp(mostly marine and offshore, oil)-used to cost around $19,820.With the reduction of board lot size(from 1000 per lot to 100 per lot, you can buy into these companies with just $1928 now
- SATS(the company that provides ns man food...) shares gave a total return of around 30% in 2015. Investing in the company cost just a little over $400
In general, stocks can be classified as growth, income or a hybrid of both. Using certain financial ratios, we can differentiate between growth and income growth and income stocks and determine which best suits our investment goals
Growth Stock:
- A company stock that tends to increase in capital value rather than yield high income,this mean you earn more from selling the company stock rather than via dividends
General telltale sign
- Generates substantial and sustainable positive cash flow
- Revenues and earnings increase at a faster rate than average companies
- Has a competitive advantage over its peers
- Pay small dividend as these companies tend to reinvest profits for further growth
- 5-year Revenue Growth
- Price-Earning ratio
You can read about 5-year revenue growth and the price-earnings ratio at my last week post here
Income Stock- Found mostly in stable industries and pays a consistent dividend to reward their shareholders
- Capital return is generally lower than a growth stock
- Dividend Yield (consistent payout for at least 3 years)
You can read about Dividend yield at my last week post here
Stock(Stock code):DBS Group Holdings Ltd(D05)
- Stock code are a short form that consists of letter and number or both, so when you purchase DBS share, you key in D05 instead
Industry: Bank
Link:https://sg.finance.yahoo.com/news/sgx-research-dbs-ocbc-uob-084407840.html
- DBS, OCBC, and UOB has an average P/E ratio of 14.1x
- There is also the sector P/E ratio,shareinvestor has such info but must be a member
Market Cap :$63.815 Billion
Link:https://www.investopedia.com/terms/m/marketcapitalization.asp
- Small cap companies: Around $300 million to $ 2billion
- Mid-cap companies:$2 billion to $10 billion
- Large-cap companies: More than $10 billion
- Hence, DBS is categorized as a large-cap company
Total Revenue($B): $10.17 Billion
- Known as sales in income statement, will delve deeper into it when I will study more on the financial factsheet
5-year Revenue growth %:9.32%
- 23 Aug 2013:$16.16
- 30 Aug 2018:$25.23
- Using the cagr calculator from Investopedia to calculate, it gives us:9.32%
- Interpretation from the calculator: Over the course of 5 periods your investment grew from $16.16 to $25.23, its compound annual growth rate, or its overall return, is 9.32%.
- Interpretation of CAGR: Over the course of 5 periods your investment grew from $16.16 to $25.23, its compound annual growth rate, or its overall return, is 9.32%.
- CAGR essentially smoothes out the progress of your investment over a period of time, providing a clearer picture of your annual return. However, although your investment started at $16.16 and ended with $25.23, its growth in any one year may have been quite a bit higher or even negative (if the investment ever lost money over that time). Consequently, the CAGR figure may give the impression that the investment has produced a stable return throughout its life, even if the investment was extremely volatile, fluctuating a great deal from year to year.
- Big and established companies(blue chip) normally have a P/E ratio of 15 of 25
- Still on its way to reaching the P/E ratio of 15
Dividend yield(Not included in the book)
- For comparison between growth and income stock
- Dividend yield(2016):2.38%
- Dividend yield(2018):6.75%(this is crazy man btw)
- From 2.38% to 6.75%(this has evolved to both a growth and income stock)
- In my opinion, any stock that has a dividend yield of more than 5 % is an income stock
Examples of Income stock
Stock(Stock code): Capitaland mall trust(C38U)
- Stock code of Capitaland mall trust, C38U
Industry: Real Estate Investment Trust(REIT)
- REITs are normally categorized under Income stock, due to their high dividend yield
Market Cap:$7.666Billion
- Small cap companies: Around $300 million to $ 2billion
- Mid-cap companies:$2 billion to $10 billion
- Large-cap companies: More than $10 billion
- Hence,capitaland is categorized as a Mid-cap company (a little surprising, really)
- Total Revenue($B):0.68
- Known as sales in income statement, will delve deeper into it when I will study more on the financial factsheet
5-year Revenue growth %:2.61%(not included in the book)
- 23 Aug 2013:$1.89
- 30 Aug 2018:$2.15
- Using the cagr calculator from Investopedia to calculate, it gives us:2.61%
- Interpretation of CAGR: Over the course of 5 periods your investment grew from $1.89 to $2.15, its compound annual growth rate, or its overall return, is 2.61%.CAGR essentially smoothes out the progress of your investment over a period of time, providing a clearer picture of your annual return. However, although your investment started at $1.89 and ended with $2.15, its growth in any one year may have been quite a bit higher or even negative (if the investment ever lost money over that time). Consequently, the CAGR figure may give the impression that the investment has produced a stable return throughout its life, even if the investment was extremely volatile, fluctuating a great deal from year to year.
Price-Earning ratio:11.51
Dividend Indicative Yield:5.28
- Big and established companies(blue chip) normally have a P/E ratio of 15 of 25
- Still on its way to reaching the P/E ratio of 15
- Dividend yield(2016):5.20%
- Dividend yield(2018):3.97%
- From 5.20% to 3.97%(this has become a "non growth and income stock?")
- Btw, Capitaland mall trust(C38U) is a REIT and REITs typically payout dividend every quarter
- In my opinion, any stock that has a dividend yield of more than 5 % is an income stock
- Will talk more about REITs in part 5!
