NeraTel: 2Q2015 and an interim DPS of 2.5c.

In my last blog post on NeraTel, I cautioned against judging the business based on quarterly results because annualising any one quarter's results would not give an accurate picture of business performance. I made the remark based on what I remember the CEO said in an interview:

"In an interview that NeraTel's CEO, Samuel Ang, gave to The EDGE, some time ago, he said that it is important to remember that revenue recognition could be lumpy because NeraTel is generally a project based business." 

NeraTel has announced an interim dividend per share (DPS) of 2.5c on the back of rather encouraging results for 2Q 2015, quite different from the rather gloomy numbers in the preceding quarter.

Revenue for 1H2015 ($90.5m) improved some 7.2% over 1H2014 ($84.4m).

Although the numbers are encouraging, it is only fair to say that NeraTel is still faced with challenges which are forcing them to accept lower margins.

Note that gross profit margin reduced from 35.1% to 33.1%, although it is still above 30% which is pretty good for any business. At the end of the day, NeraTel is still a profitable business although profit after tax reduced 13.1% for the first 6 months of the year, year on year.

NeraTel has plenty of cash which is one of the reasons why it is attractive to income investors. This is also the reason why it is able to pay out 2.5c in interim DPS although its 1H2015 EPS is 1.93c, Part of the dividend payout is, therefore, a return of capital.

Many moons ago, I said that anyone who thought a yearly DPS of 6c for NeraTel was sustainable must have been on drugs. I said that a yearly DPS of 4c was more realistic.

To be quite prudent, however, for anyone who is interested in investing in NeraTel for income today, a DPS assumption of 3c or 3.5c per annum could be a better idea. In such an instance, based on a closing price of 67c a share, we are looking at a dividend yield of 4.48% to 5.22%.

NeraTel, with plenty of cash, low debt and a good track record, remains, for me, a relatively good investment for income. I am quite happy to be paid while I wait. Yes, my bet is on Mr. Samuel Ang bringing his years of experience to bear and delivering better results eventually.


Related posts:
1. NeraTel: Is 1Q2015 a sign of things to come?
2. NeraTel: What is a sustainable dividend payout?

Funding XX% of our retirement with our CPF savings.

A question I get asked pretty often is how much of our retirement could be funded by our CPF savings and I always say that it depends on the kind of lifestyle that we want.

If we would like to have a car, travel and indulge in fine dining, for sure, we are going to need much more than our CPF savings in our golden years. If we are happy with the basic necessities of life, then, our CPF savings could go a long way to providing for our old age.

Whatever our retirement expectations might be, it pays to have an idea as to what our CPF savings might be able to achieve as a percentage of total funding required for our retirement. Then, we can make appropriate plans as to how we might be able to fund the shortfall.

I am going to share an email from a reader detailing his plan on how he is using the CPF to help achieve retirement adequacy and much more.

Now in his 20s, knowing what he wants at retirement, he came up with a target monthly retirement income of $10,000 from age 65. Based on the plan which he is sharing with us here, his CPF savings should account for 20% of retirement funding:


Hi AK,

My 2c: first 60k of combined balances of which up to 20k is from OA. I interpret it as if all 60k comes from SMRA (OA having $0), then first 60k enjoys 4+1% interest.

Anyways glad to see blogs like urs around. Been working for 2+ yrs and had transferred (a month back)/plan to transfer all my OA to SA and do the 7k min sum topup till i hit the future cap (est before i turn 35). My OA has nothing and I'm ok with that as my mthly expenditure is ard $700 :) agree that one shld aim to have annual cpf interest matching/more than covering the increase(s) in MS.

Rgd the medisave int. paying for premiums; was the exact same rationale i told my dad. His interest more than covers premiums and interest from the rest covers the rider (i.e. Pay nothing out of pocket for hospitalisation). He can feel free to pick a better policy (IP) without worrying (until such time when the interest fails to cover, then downgrade). For myself, plan to max out VC MA top ups to annual contribution ceiling ($36720 from 2016) which will also be subjected to the BHS ($49500 at 2016).

Lastly, to enjoy the maximum benefits of interest for top ups, either a) top up 7k at start of year (if u've 7k lying ard) b) top up incrementally near end of mth (interest is given based on lowest balance/mth so topping up at the end mth means lower op cost for lost interest that shld have been accrued on sum).

On a separate note, retirement/financial planning personally is abt attaining a level of passive income pegged to last drawn annual package (not expenditure) as it provides a Very long term goal (if one ever reaches it) and cpf is one component/source of passive income. I wld propose the following weighted sources of passive income based on 10k mthly at 65years: cpf (20%), blue chip stock dividends (50%), srs funds (15%), bonds (10%), unit trusts/funds (15%). Noted that payouts for these sources may not be monthly (DDA for cpf likely will not be 65 for my cohort either haha) as it's used more as a guide. Dont think i'll ever enter full retirement though; nothing to do to pass time!
*cld go on about industry allocation for blue chip stocks but that's another topic altogether :D

Regards,
Longtermplanning
*Wld like to stay anonymous so pls use the above pseudonym thx!

The original intention of the CPF is to help fund our retirement. The reader has shown how he is going to take full advantage of the CPF to do what it is supposed to do.

AK did CPF-OA to CPF-SA transfers for the first 4 years of his working life, providing the magic of compounding a bigger amount to start with. Compounding is magical given more time but it is even more impressive when given a larger amount to start with.

Having said this, all of us have different circumstances. Some might not be able to do OA to SA transfers because they need the OA money to pay their home loans. Some might not have spare cash to do Minimum Sum Top Ups to their SA or Voluntary Contributions to their MA.

Although I am not dogmatic about the CPF, it is reasonable to say that it is about finding what each of us can do to take advantage of the system. If we want it bad enough, we will find a way and usually it starts by being financially prudent.

Related posts:
1. A lot of money in my CPF-SA is...
2. Make CPF a part of your child's savings plan.
3. A lifetime income of more than $2K a month.
4. An annuity: Would you rather have it or not?
5. The best insurance to have in life.