What's next, page-74

Crazypunter

Below are thoughts that I had in mind that I did not articulate in my previous post.

Normally, I do not invest in a stock to make a capital gain – I invest to get the income stream at a good price, particularly if the income stream has an upward trajectory, because then over time the original investment improves, and a corollary of that is a tendency for the SP to increase. If the SP does not follow the income-stream trajectory, or it moves contrary to it, then subject to funds being available, and subject to the the weighing of the investment to my total portfolio, I would buy more if my view of the health of the company had not changed for the worse.

When I bought CCP shares in the second half of calendar 2014 for $9.609 (about $9.64 after brokerage), management guidance for FY2015 was for a DPS range 39c-42c. I figured that because management tended to under promise, the DPS would be 43c. The actual DPS was 44c. I also expected the DPS to grow by 10% per annum for a few years. Thus I presumed that dividend plus franking credits would be 43c ÷ .7 for FY2015. Consequently, the yield would be ($0.43 ÷ .7) ÷ $9.64 = 6.37%. This was not fantastic, but a year later I expected the yield to increase by 10% to give ($0.43 x 1.1 ÷ .7) ÷ $9.64 = 7.01%, and hence over time it would get better.

With the benefit of getting a DPS of 44c in FY2015, I presume that it would be 44c x 1.1 in FY2016. When the SP fell below $10.00, I bought again at $9.46 ($9.48 including brokerage), and reckoned the return to be ($.44 x 1.1 ÷ .7) ÷ $9.7 = 7.13%, and better than that if the DPS grows again by 10% in FY2017, which is my current expectation.

The point that I want to make is that the SP decline caused by the USA selling had no impact on my valuation of CCP, because it did not affect my income-stream expectations. If the SP remains low, the income stream justifies me holding, and in some circumstances, buying more. Obviously, if the SP rockets ahead of my valuation, then I may sell, especially if I have a candidate stock that would merit an investment.

PS for Investing101 – Tomorrow, or over the weekend, I'll get around to adding flesh to support my preference for CCP. What is missing from my earlier post is a few metrics to cover EPS and DPS trajectories, plus metrics to indicate comparable risks. I am more comfortable guesstimating what CCP may do than I am guesstimating what CHL may do.