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For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced. ------------
I invested in SATS donkey years ago in 2014 at under $3 a share.
Back then, I said the following.
SATS' PE ratio was under 19 times.
Although SATS paid more dividend per share or DPS than its earnings per share or EPS, a more normalized payout ratio was 70% of earnings.
So, I believed that an annual DPS of 11 cents was realistic.
Based on $3 a share, that would have translated to a dividend yield of 3.67%.
Compared to the risk-free rate we can get today with T-bills, it would not be that attractive today.
However, in an environment of very low interest rates, that would have been a pretty decent dividend yield from a solid and predictable business model.
Especially when there was an element of growth, no matter how small, thrown in.
Of course, the COVID-19 pandemic changed things.
To be fair, it changed things for many businesses and not just SATS.
SATS suspended dividends.
Just when things were looking up post pandemic, they decided to buy WFS for more than $1 billion.
I likened the deal to a snake swallowing an elephant.
When an unlikely opportunity presented itself in February this year, I sold my investment in SATS, netting a gain in the process.
In the blog I published in February, I said this.
"I really didn't want to have to bother with the proposed rights issue especially when I used my SRS money to invest in SATS.
"That was many years ago, but long-time regular readers might remember my blogs on SRS money, and how I would use them to generate higher returns.
"I was careful to invest my SRS money only in endowment policies and businesses which I thought would never have to do equity fund raising by issuing rights.
"This matter of acquisition and fund raising has been going on for so long and I am glad to be rid of it."
The money I got from the sale probably went to increasing my investment in OCBC when its share price dipped below $12 later on.
Anyway, when a reader asked if she should take part in the rights issue as she was holding on to the investment, I talked to myself as usual.
I really could not see SATS paying a dividend again for a while, and I could not tell how well the integration would go.
I would be wary of throwing good money after the bad.
It was not as if SATS was paying a meaningful dividend to reward shareholders for their patience and further monetary support.
I know many analysts are waving "BUY" flags with target prices of above $3 a share for SATS.
Target price of $3.25 a share is the average.
If they are right, long-time investors in SATS like me could see good results too without taking part in the rights issue.
Just have to wait and see.
In the latest report, SATS reported a net loss of more than $26 million.
This compared to the net profit of more than $20 million last year.
At $2.75 a share, it seems that the forward PE ratio for SATS is 25 times.
Of course, we should remember that forward PE is different from trailing 12 months PE since it is forward looking and an estimate by analysts.
I remind myself that SATS is still not paying a dividend.
I also remind myself that when I invested in SATS in 2014, it was paying a dividend.
At the time in 2014, its PE ratio was under 19 times.
So, would you like to make a guess as to when I might invest in SATS again?
Everything else being equal, right now, it has to be around $2.10 a share.
This is even lower than what existing shareholders had to pay during the rather recent rights issue.
On hindsight, that would have been another reason not to be overly optimistic about the acquisition of WFS.
Of course, for me to invest in SATS, it should be paying a meaningful dividend too especially when I do not think it is undervalued today.
This is the first time I am blogging about my full year income from investments in non-REITs. As my passive income generated from investments in S-REITs has for many years overshadowed income received from non-REITs, it wasn't very meaningful to blog about the latter.
Now that passive income received from S-REITs took a plunge, it has become more essential to talk to myself about what I have done in the non-REIT space which has shored up dividends received this year, making income contributions by non-REITs a more significant part of my total annual income from the stock market.
Before I continue, readers might want to bear in mind that a few of my investments in the non-REIT space have been with me for many years. They are not all new investments, therefore. Anyway, non-REITs which have contributed to my passive income in 2014 are:
1. Croesus Retail Trust 2. Hock Lian Seng 3. Perennial China Retail Trust * 4. CapitaMalls Asia * 5. NeraTel 6. Wilmar 7. Yongnam 8. APTT 9. ST Engineering 10. SPH 11. QAF 12. Old Chang Kee 13. K-Green Trust * 14. SATS 15. Ascendas Hospitality Trust 16. Singapura Finance * Sold and will not contribute any income in 2015.
New or old, I have blogged about all the above stocks before. So, if you should be interested in understanding why and when I invested in these stocks, just do a search for them in my blog and you will find the relevant blog posts.
Of these 16 stocks, I increased my long positions or initiated long positions in the last 12 to 15 months in Croesus Retail Trust, Hock Lian Seng, NeraTel, ST Engineering, SPH, SATS, Ascendas Hospitality Trust and Singapura Finance. Apart from Singapura Finance, it is quite obvious that I increased or initiated exposure to these stocks because of their relatively attractive dividend yields. I am still an income investor at heart. I wouldn't say that all the stocks are of the "good to hold forever" variety but it should be obvious to regular readers that I am not averse to selling a stock if I am no longer impressed by its prospects. There are many examples which I have blogged about in the past and examples from this year are Perennial China Retail Trust and K-Green Trust in the list shared earlier. Anyway, the total amount of dividends from non-REITs in 2014 is beefed up mostly by my rather big investment in Croesus Retail Trust which happened when its unit price took a severe beating shortly after its IPO. The relatively large increases to my investments in SPH and NeraTel also helped.
Income from non-REITs in 2014: S$ 61,752.66 This figure could increase in 2015 despite losing the contributions from Perennial China Retail Trust, CapitaMalls Asia and K-Green Trust. This is because Ascendas Hospitality Trust will make a full year income contribution in 2015. Of course, it is hard to say at this point in time if I could divest partially or fully some of the investments mentioned here in 2015. Indeed, I could also put more money to work in the stock market. So, nothing is set in stone. However, I do know that if valuations should go closer to crisis levels, I will be buying more. I understand that the stock market could get a bit bumpy but my investments for income should provide me with much comfort and also help to fill my war chest in the meantime.
When I first enlisted in the Singapore Armed Forces, combat rations were made up of canned sardines, canned chicken curry, canned baked beans, hardtack biscuits and chocolate bars. When I went back 4 years later, combat rations came in army green packets and the variety was amazing! The packaging was strong and practical too. We would leave the packets on the bonnets of 3 tonners and they would heat up under the Sun. Simply tear open the packets, pour out the contents into mess tins and we would have really yummy (almost gourmet, I feel) and warm meals. I brought home a packet of red bean soup then and my mom loved it! My mom is very critical when it comes to red bean soup and she loved it! So, it must have been really good. Anyway, a friend who went for reservist training recently told me packets and packets were thrown away as none of his fellow soldiers consumed any of the combat rations, preferring to simply dump the food packs in the rubbish bin at the end of the exercise. It really pains me to think that so much perfectly good food is going to the landfills. All the resources that went into producing, transporting and storing the food are wasted. Of course, it is also a waste of precious tax-payers' money. I do not understand why people would throw away perfectly good food:
Potato, cheese and sausages.
Black pepper mushroom noodles with sausages.
Baked beans, corn, cheese and sausages.
To readers who are still serving our country either as active servicemen or reservists in the military, please don't waste food. Please don't throw away your combat rations. Like what my mother used to tell me when I was a boy, "Think of the many less fortunate people who do not have enough to eat."
Finally, for a bit of trivia, do you know that there is a company called Singapore Food Industries (SFI)? I used to be a shareholder. They are the people who supply combat rations to the Singapore Armed Forces. I rather liked the regular and good dividends which they paid. Soldiers have to be fed and MINDEF is a good paymaster. Unfortunately, SFI was bought over by another company, SATS. Yes, interesting bit of trivia, isn't it?
I have shared here in my blog on a few occasions that I am increasing my investments in companies which are going to be less affected negatively in an environment of rising interest rates.
Although interest rates are still low, it stands to reason that they will have to rise in future. When interest rates do rise, businesses and individuals who are heavily leveraged will be the ones to feel its direct impact more severely.
In view of this, one business which I have accumulated a small long position in recently is SATS as its stock price became significantly lower at $2.94 a share upon the counter going XD.
A price of $3.00, give or take a few bids, gives us a PE ratio of almost 19x. Of course, if the company is a grower, then, it might not be considered expensive. Otherwise, I would feel more comfortable buying more if the PE ratio is lower.
Although sometimes SATS pay more dividend per share (DPS) than its earnings per share (EPS), a more normalised payout ratio is 70% of earnings. So, I believe that an annual DPS of 11c is realistic. Based on $3.00 a share, that is a dividend yield of 3.67%. Not anything to scream about.
Technically, there seems to be some support at $2.95. This is probably due to the fact that SATS have been buying their own shares in the open market each time price goes to $3.00 a share or so. Technically, it is also easy to see that if support at $2.95 were to be lost, we could see $2.50 tested.
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