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In search of high dividend yields

/ 01:15 AM August 11, 2015

I always had a bias for growth stocks for their potential to realize high capital gains.

Capital gain in stock investing is simply the difference between your original buying cost and ultimate selling price.  It’s a fast way to make money in the stock market.  The only problem is that it’s a bit radical, thus, a risky way of investing.  It can make you lose just as much, or even more.

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A good friend was wondering if there is a better—and even though more conservative—way to earn good money in the stock market.  He thought of retiring soon, but was afraid the interest earnings from his savings will not be enough to support the lifestyle he wanted.

For instance, the interest rates for savings accounts in majority of commercial banks at present are somewhere between 1.13 to 1.17 percent per annum. Also, there are about two to three universal banks that offer about 1.25 percent, while a subsidiary savings bank of one universal bank is offering 1.5 percent.

With the highest offered rate of 1.5 percent, my friend computes that he must have at least P100 million to earn P1.5 million.  Sadly, he doesn’t have that much amount of money saved.

Of course, he could get higher returns by investing in special-yielding fixed-income accounts like the interest rates for special deposit accounts that has a yield of about 2.5 percent per annum.  A P10-million investment will only get him a yearly earning of P250,000.00. Knowing a little about him and his plans, this will certainly not give him the kind of retirement he has in mind.

The prospects of making the most out of his savings become even bleaker if he gets into trouble with his credit cards.  When payment of bills is done on installment basis, the lowest interest rate charged by a credit card issuer would be about 42.58 percent per annum.  This goes up higher to 51.11 percent per year if the credit card issuer follows the overall industry rate.

Dividend investing  

Unfamiliar with the different ways of investing in the stock market, he wondered if he could still find stocks that can yield good dividend returns that may rival earnings from special savings deposit accounts.

To my surprise after making a quick scan of recent published reports, I found out that there were still a good number of listed companies that could provide such desired, if not better “fixed-income returns,” while allowing one the chance to earn extra return from their price appreciation or capital gains.  Surprisingly, most of them continue to figure in the market’s stock plays.

Last March 2015, the Philippine Long Distance and Telephone Company (TEL) declared a cash dividend of P113.40 per share for an equivalent payout ratio of 75 percent.  The company has an earnings per share (EPS) of P151.50.

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At the traded price of P2,756.00 per share, it was trading at the price earnings ratio (PER) of 18.9 times and at a dividend yield of 4.11 percent.

DMCI Holdings Inc. is another good stock for dividend investment purpose.  It declared a cash dividend of P0.43 per share on May 2015 on an EPS of P0.7.  The payment translates to a payout ratio of 62 percent and a dividend yield of 3.64 percent.  At the price of P11.88 per share, it was trading at the PER of 16.7 times.

Semirara Mining and Power Corporation (SCC) is another choice.  Unfortunately, the company was recently the subject of a market stir that drove down its stock price.  It suffered another accident in its mine site last July.  Nine miners were reportedly killed following a rain-induced landslide.

SCC declared a cash dividend of P3.60 per share last May 2015 on an EPS of P7.0.  At its prevailing price then of P116.20 apiece, SCC had a dividend yield of 3.10 percent and a payout ratio of 52 percent.

Also a good investment with a dividend yield of 2.75 percent on a payout ratio of 64 percent is Globe Telecom Inc. (GLO).

On May 2015, GLO declared a cash dividend of P72.90 per share on earnings of P114 per share.  At the share price of P2,654.00, it was then trading at the PER of 23.5 times.

Close by, but not visibly noticeable as a good dividend-yielding stock, is Belle Corporation (BEL).  It declared a special cash dividend last January of P0.18 per share.  At that time, the company also launched a “Share Buyback Program.”

On Aug. 28, BEL stockholders are going to receive a regular cash dividend of P0.095 per share “to be taken from the unrestricted retained earnings as of 2014.” Covered by this dividend payment are shareholders of record as of Aug. 14.

At BEL’s traded price of P3.75 per share last Friday and reported net income of P0.21 apiece, the company has a dividend yield of 2.53 percent and a payout ratio of about 45 percent.

If we total the cash dividends BEL’s stockholders will receive for 2015, these will add up to P0.275 per share.  The yield will easily place BEL on top of the companies with the highest dividends.  It will also give BEL the distinction of being one of the more generous firms in giving back earnings to stockholders.

First Gen Corporation (FGEN) is another company with high dividend yield.  Last July, FGEN paid out a cash dividend of P0.63 per share out of an EPS of P2.42.  This is equivalent to a payout ratio of 26 percent and a dividend yield of 2.41 percent.  Based on its last traded price of P26.10 per share, FGEN is trading at a low PER of 11.0 times.

Last to make the cut among listed stocks with a dividend yield higher than any of the special savings accounts offered today is Aboitiz Power Corp. (AP).  AP paid a cash dividend of P1.03 per share last March on an EPS of P2.30.

The dividend payment has the equivalent payout ratio of 45 percent and a dividend yield of 2.38 percent.   At AP’s last traded price of P43.20 per share, it is trading at 18.9 times earnings.

Bottom line spin

Actually, there is still a long list of publicly traded stocks that also continue to compete with the special savings account interest rate of 1.5 percent.   Among them are: the Bank of the Philippine Islands (BPI) with a dividend yield of 1.76 percent; Metro Pacific Investments Corporation (MPI) with 1.76 percent; Aboitiz Equity Ventures, Inc. (AEV) with 1.71 percent; Energy Development Corporation with 1.27 percent; and San Miguel Corporation (SMC) with 1.25 percent.

These companies have, in the past, declared one or a combination of the three types of dividends, namely: cash, stocks, or other property.

Certainly, the stock market has offerings that can give just as high, if not better, returns.  All you have to do is a little homework to identify and find them.

(The writer is a licensed stockbroker of Eagle Equities, Inc..  You may reach the Market Rider at [email protected] , [email protected] or at www.kapitaltek.com)

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