Monday, February 27, 2012

Dividend Investing

This post is to give a pointer on Dividend Investing or Dividend Kings.

There may be a need for you to have a portion of your portfolio in what I call as Dividend Kings.

These are companies, that pay a dividend through thick and thin.

Here, the trick is to value the company for dividend growth or reduction over a suitably long period.

Also, one needs to have a sufficiently long period of dividends from which one can determine the variability of the dividends.

I am laying below the data for AEI Corporation.

Year Dividend
2012 0.01
2011 0.01
2010 0.03
2009 0.0075
2008 0.01
2007 0.006
2006 0.015
2005 0.0135

With this data, one can estimate the payouts over 20 years.

Of course, the big assumption is that the company will survive for 20 years.

Plugging this into my model and using a discounting rate of SGS Yield with Inflation for the risk premium, i estimate the fair value of AEI Corporation to be 10.6 cents.

The share is currently trading at 11.9 cents.

Will it come down to 10.6 cents or below ?

I am prepared to wait.

This is a link to the company

1 comment:

  1. Hi Vatsa, I chanced upon your blog recently and read several of your postings. Then I decided to read from the oldest to the newest, and here I am.

    Impressed that you are able to scan through the web and picked up several good articles and shared here (I suppose you are working, and where to find so much time!!!). Thanks for that, I learned from those articles, and also from your blogs.

    You mentioned this model where you calculate the value, I believe is a DCF model? But isnt it difficult to estimate the future earnings and hence, please comment and advise how accurate this model is from your tracking so far?