Dividend growth investing

[Mr.G]

Hello Mr G,

Sorry to interrupt your flow !
But can you tell me how you calculate the stock fair value, can you give a example of Indian stock.

Thanks :thumb:

Comments are highly welcome! You know what! I'll post a few methods of stock valuation.

 

[Mr.G]

Mutual Funds Are Money Traps Part-1

A mutual fund is simply a collection of stocks and bonds. These stocks and bonds are actively managed by a “professional” fund manager who takes a hefty yearly fee for his service. You might think that employing such an industry expert manager would be beneficial for the shareholder. Well you thought WRONG.

Over time 80% mutual funds will underperform the market due to their costs. There are a few funds how have consistently outperformed the index, but these are a handful. Even if they do manage to outperform the index they will always carry the remark in the fine print that “Past performance is no guarantee of future returns”. AMCs will draw up pretty graphs showing spectacular returns and happy faced catalogues to win your money.

Benefits of Mutual Funds:
• Diversification: Buying a mutual fund is like buying lots of stocks in a single basket. Diversifying risk.

• Liquidity: Mutual Fund units can be redeemed for cash at any given time upon request.

Disadvantages of Mutual Funds:


• Management: Yes, the management you employed to manage your holdings is one of the biggest banes of your returns. An average fund manager is no better than analyzing and investing than a non-professional. They also have fixed base salaries, so they have no interest in the long-term benefit of the shareholder. They more so run after their quarterly bonuses, sacrificing long term gains for short term solutions.

• Mandatory Restrictions: Restrictions placed in order to “protect the shareholder” actually makes him miss out on many investing opportunities that are outside a mutual funds mandate. Biggest of these are value buy situations, where a stock falls out of mandate of many mutual funds. Many fund managers like sheep also sell their holdings for no good reason.
• Dilution of profit: Over-diversification results in averaged out performance even from the best performing holdings of a mutual fund. This brings down returns.

• Costs: Mutual Funds have a plethora of complex costs and charges placed upon the naïve shareholder. These are the killing blow to mutual fund’s returns in the long run.


http://ghanishtnagpal.com/mutual-funds-money-traps-part-1/

 

[Mr.G]

Mutual Funds are Money Traps Part-2

Understanding Mutual Fund Fee

The most important figure to understand is the expense ratio of a mutual fund.

It is composed of:

Management Fee: This is the fee taken by the fund manager for service rendered. On average this fee is from 0.4% to 1% p.a. of the fund’s total holding. This fee ensures that your fund manager can wear expensive suites and travel on exotic vacations.


Administrative Cost: This cost includes all the minor staff of the fund. Including record keeping, mailing, and costumer care service. These costs vary from fund house to fund house. Usually they are kept under 0.5% p.a. of the fund’s total holdings.


Distribution Fee: This is charged by some funds, it is used to fund the advertising and marketing of the mutual fund. Essentially you are paying for the distribution services of the mutual fund without gaining anything from it.


What Options Do You Have?

Buy Index Funds: They are passively managed very low cost ETFs. They are perfect for staying with the market. As they are designed to mimic the movements of a benchmark. You will not outperform the market, but you will NEVER underperform as well.


Employee a Personal Money Manager: These are specialized professionals who are adept in creating portfolios according to the specific needs of their clients. They unlike mandated fund managers are more flexible in choosing investing opportunities. They also do not have a fixed fee. They work on profit performance fee only.

There is a whole band wagon of advisors and analysts that swear by mutual funds. These are usually paid commission for such advices. With the presented facts it is upto you whether or not to invest in mutual funds. The only time to buy a mutual funds is never. In my opinion it is better to focus on high quality dividend bearing stocks rather than mutual funds.

http://ghanishtnagpal.com/mutual-funds-money-traps-part-2/

 

[searchsomeone2001]

Hi thanku very much

 

[Gandhar.]

Hiii G

as you have stated about value traps
can you please tell how to spot them and avoid them from retail point of view
example- psu banks omc smallcaps

also what about overvalued traps
some companies always trade @ higher pe and pb ratios
but they still rise due to the earning growth exceeds these ratios
how to spot them and still buy them @ not higher pe pb ratios
examples hdfc asian paints sunpharma etc

 

[Mr.G]

Hiii G

as you have stated about value traps
can you please tell how to spot them and avoid them from retail point of view
example- psu banks omc smallcaps

also what about overvalued traps
some companies always trade @ higher pe and pb ratios
but they still rise due to the earning growth exceeds these ratios
how to spot them and still buy them @ not higher pe pb ratios
examples hdfc asian paints sunpharma etc

No problem. Today's subjects will be DFC valuation method, DDM valuation method/ Gordon Variation. AND How to find value traps. :thumb:

As far as overvaluation goes, Who the hell would buy over valued stuff? I am not a growth investor. I advise against it. I sell value buys when they reach their intrinsic value and ONLY sell dividend growth stocks when they cut dividend or I find a better opportunity. (That has never happened yet)

For now read what a perfect dividend stock looks like. The kind you can hold on forever.

 

[Mr.G]

The Awesome Power of A Consumer Monopoly

I suggest you go to your daily-needs store and look around for products that are part of your everyday life. Household name products such as ITC cigarettes and Colgate toothpaste. You guessed it, Consumer Monopoly are the perfect Dividend Growth Stocks.

These are easily identifiable consumer monopolies which typically have high profit margins because of their unique product and extreme brand loyalty.



You can identify a Consumer Monopoly through:

Conservative Financing: Consumer monopolies tend to have consistent cash flows, with little or no need for any long-term debt.

Organic Growing Earnings: A business whose future earnings are predictable to a high degree of certainty. Companies with consistent earnings have good business model and produce free cash flow that can be reinvested or used to pay dividend. As earnings increase, the stock price and dividend will eventually relate to this growth.

A business whose future earnings are foreseeable to a high degree of certainty. corporations with consistent earnings have sensible business model and generate free income that may be reinvested or used to pay dividend. As earnings increase, the stock value and dividend can eventually relate to the present growth.

A Consistent Focus: Companies only expand into related fields that offer high return potential. They tend to stick with their niche products only. Eg, Colgate-Palmolive has expanded into many types of FMCG personal hygiene products.

Investing Retained Earnings: A company ought to retain its earnings if its rate of return on its investment is more than the investor may earn on his own. Dividends ought to solely be paid if they are better used in different corporations. If the earnings are properly reinvested within the company, earnings ought to rise over time and stock valuation and dividend also will rise to mirror the increasing worth of the business.

This is just a preliminary scan for good Dividend Growth Stocks.

http://ghanishtnagpal.com/awesome-power-consumer-monopoly/

 

[Gandhar.]

also Ghanisht
can u share the av div yield for all the stocks you hold
also you said that u dont want to invest in growth stocks
does that mean that dividend yield stocks that you are holding are not growing??
suppose if a particular sector has 2 such stocks (div type)
example oil india and ongc
which stock you would and why
just dont tell ongc coz its leader
oil india also gives good div.....

 

[comm4300]

Hi Mr. G,

nice information posted. thank you.

for long term purposes:
stuck with the dilemma about investing in stocks Vs. ETFs

when you get time, pl share your thoughts.

 

[maneverfix]

I always suspected this and never invested in MFs, but you have clarified this doubts very well. Thanks

Mutual Funds are Money Traps Part-2

Understanding Mutual Fund Fee

The most important figure to understand is the expense ratio of a mutual fund.

It is composed of:

Management Fee: This is the fee taken by the fund manager for service rendered. On average this fee is from 0.4% to 1% p.a. of the fund’s total holding. This fee ensures that your fund manager can wear expensive suites and travel on exotic vacations.


Administrative Cost: This cost includes all the minor staff of the fund. Including record keeping, mailing, and costumer care service. These costs vary from fund house to fund house. Usually they are kept under 0.5% p.a. of the fund’s total holdings.


Distribution Fee: This is charged by some funds, it is used to fund the advertising and marketing of the mutual fund. Essentially you are paying for the distribution services of the mutual fund without gaining anything from it.