High Dividend yield and Low Price-to-Book ratio – winning strategy

In The Business Times Weekend edition dated 21-22 January 2012, Ms Teh Hooi Ling wrote a piece titled “Getting paid while you wait”.

The senior correspondent wrote that “buying stocks with highest dividend yield, but lowest Price-to-Book (PTB) ratio appears to be a winning strategy.” This was based on data crunching of stock performance over 22 years starting in 1990.

I use the data provided by Teh Hooi Ling in the Monday’s Business Times (23 January 2012) and compute the Dividend to PTB ratio (see last column below). The stocks are ranked with high dividend but low PTB (from largest ratio to lowest) of some selected stocks made available by the correspondent. These stocks had market capitalisation of more than $1 billion.

Forecast PE Dividend yield (%) P/NTA Dividend/Price-to-book
SIA 22.1 12.0 1.0 12.00
SATS 14.3 7.5 1.7 4.41
DBS 10.4 4.3 1.3 3.31
SIA Engr 13.4 9.0 3.1 2.90
SPH 14.9 6.6 2.5 2.64
UOB 11.5 4.1 1.7 2.41
OCBC 12.5 3.6 1.6 2.25
Singtel 12.8 8.5 4.0 2.13
Fraser & Neave 12.9 2.8 1.5 1.87
City Development 12.6 2.4 1.3 1.85
Sembcorp Marine 13.9 7.6 4.6 1.65
Sembcorp Industries 11.0 3.7 2.3 1.61
Keppel Corp 13.1 3.8 2.8 1.36
ST Engr 16.9 5.1 5.3 0.96
M1 12.7 7.3 8.2 0.89
Singapore Post 12.4 6.5 8.9 0.73

(Source from data published in The Business Times’ article written by Teh Hooi Ling dated 23 January 2012)

The dividend information includes both ordinary dividend and special dividend and therefore dividend yield for some years of some stocks could be unusually high because of special dividend paid out in that year (e.g. SIA).

Based on ranking, three local banks occupy top 10 spots. Singapore Press Holdings, Singtel, and SIA ranked well in dividend yield. All these six stocks are the best known on the Singapore Exchange. In the top ten list, it includes SATS, SIA Engineering, Fraser & Neave and City Development.

Will this winning strategy continue into the future?

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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