Portfolio Watch: 30 August 2020
In this series of Portfolio Watch, I have a look at the performance of my portfolio. I also look into a new investment concept, explain it in my own words and try to implement it in my own portfolio. This week I look at dividends.
Dividend Yield is a percentage of dividends paid over the past 12 months divided by the share price. This ratio is supposed to show you how much return on investment you could earn by purchasing this share.
Dividend Yield = Annual dividends per share / Price Per Share
If the stock paid a dividend of R5.00 and the share price is R25.00, the Dividend Yield will be 20%.
The problem with this ratio is that if the share price drops, the Dividend Yield percentage goes up, making the share look more attractive, which could be very misleading.
Dividend Payout Ratio
The dividend payout ratio compares the Dividend per Share (DPS) with the Earnings Per Share (EPS). This, to me, is a better measure than the Dividend Yield because it looks at the company's earnings/income rather than the share price. You get an idea of how much dividends the company paid out relative to it's earnings.
Dividend Payout Ratio = 1 - (Earnings Per Share - Dividends Per Share / Earnings Per Share
It also depends on the size of the company. If it is a fairly new company, it's expected to grow and therefore reinvest its earnings back into the business to grow. Hence, investors expect a low Dividend Payout Ratio for new/growing companies.
The opposite is true for well established companies. Investors expect a dividend from these firms.
Dividends in the Banking Sector
Since my last post, I've sold my FirstRand Ltd shares. In that post I've set a target of R40 to sell my Firstrand shares. I've hit that target, sold my shares and made a little bit of a profit.
I'm still interested in owning shares in a company in the banking sector. So I'll be checking the stats of all the banks and determine which one would be the best to invest in.
I checked the dividend stats for the 6 banks I reviewed last week. I could easily find the Dividend Yield, however, the Dividend Payout Ratio I had to calculate using the EPS and DPS.
I hope I calculated the Dividend Payout Ratio correctly. The DPS wasn't that easy to find. With some companies who did pay dividends by June 2020, there was a DPS figure, but with others, the last DPS figure was in 2019. So this might not be an accurate comparison because I'm not comparing the same periods.
From the figures shown, Capitec has the lowest Dividend Payout Ratio, meaning that most of the earnings are reinvested back into company. I know Capitec is a fairly new bank, newer than the other banks. So that could make sense.
The average Dividend Yield is 5.35% and the average Dividend Payout Ratio is 0.52. Looking at the averages, Absa, FirstRand and Nedbank have higher than average Dividend Yields, and all the banks except Capitec have a higher than average Dividend Payout Ratio.
Capitec is clearly the outlier and it's skewing the average. If I remove Capitec, the average Dividend Yield and Dividend Payout Ratio is 6.25% and 0.59 respectively. Only Absa has both a higher than average Dividend Yield and Dividend Payout Ratio.
Combining the information I got last week and this week, I think Absa might be the share to buy. Absa had the second best P/E Ratio. And now it also pays out good dividends.
I'm not sure what I'll be looking at next week. Maybe a debt ratio or something to do with assets and liabilities. But if Absa is in the top 3 banks with that ratio too, I'll definitely invest in Absa, but at the right price.
Last week my portfolio showed a growth of 4.28% and this week I'm pleased to annouce that it increased to 5.15%. Almost up a whole percent. Besides selling the Firstrand stock, I invested into 3 ETFs. After I bought the ETFs, I saw a European ETF that I didn't find in my initial search. I'm not sure how I searched, but I will probably invest in it soon.
My portfolio now has 64% ETFs and 36% Equities, which used to be 45% and 55% respectively. In the end, I want the split to be 80/20. I want to diversify my portfolio as much as possible.
Here are the ETFs I bought this week.
Bought 11.5741x 1nvest S&P500 Info Tech Index Feeder ETF @ 1,296.00
This ETF was performing well for me. It was a no brainer for me. Put in more in those areas that are performing well. I am aware that there might be a bubble developing in tech, but I might as well ride the wave for now. I'll monitor the situation closely.
Bought 2.5210x Satrix S&P 500 ETF @ 5,950.00
This ETF was also performing well for me. I probably should've bought the Euro ETF with the money I used to buy this one. But I thought I had an ETF in NASDAQ, why not buy one in the S&P500 as well.
Bought 3.3520x Satrix MSCI China Feeder Portfolio @ 5,898.00
This is a new ETF. Not much history, but China is the 2nd largest, if not the largest, economy in the world. I should probably invest there as well. So I bought this just to diversify my portfolio.
When I was looking for an ETF, I was mainly focusing on the geographical location and the TER (which is the cost of buying the ETF). So I based my decisions on that.
That was a very long post. I probably need to cut it here. So until next time. Thanks for reading.