Why DCA Investing Singtel Can Be Good for Your Portfolio

Before entering this post, please pardon me and correct me for any mistakes that is written in this post. Two wise seniors have recently written on DCA for Singtel and I would like to take this chance to write about my thoughts on the DCA for Singtel. Both the post shared by them are very interesting post which triggered some thoughts of mine and I feel that their both their blogs (B and Uncle CW8888) has educated me well throughout my learning.

I would like this opportunity to thank them first before touching more on my post.

Both their blogs can also be found on my blog list located at the right panel on my blog and I've been a fond reader of their blogs for a long time.

Next up, Happy Chinese New Year to everyone that is reading this right now. Wishing everyone a blissful and healthy new year ahead and may everyone huat big big in their financial journey ahead :)

Read:

Why DCA Investing Singtel Can Be Bad For Your Portfolio - B, Forever Financial Freedom

DCA or Simple Average Down -  Uncle CW8888

So what exactly is DCA (Dollar Cost Average)?

A simple check on Google will bring you to the model definition here by Investopedia. Hence, please take a look at the image below:

From Google - Investopedia's definition

Having that said, DCA is a passive way of investing and it is different from averaging down.

Now, there is many different ways that you can actually perform DCA that is available in the market such as POSB Invest-Saver (on Nikko AM STI ETF etc.), OCBC BCIP, Maybank MIP etc.

Such accounts provided by the different institutions offers a relatively low fee for you to perform DCA and not hurt your pocket badly due to the expensive brokerage fees when dealing with small lots. There is also limited selections available for such plans with exception to OCBC BCIP (where you can touch more on the blue chips) and Maybank MIP (which offers a wide range of counters for you to choose from). 

A downside of such plans which I do not particularly enjoy is that, the shares purchased will be held under their custody and not deposited into your CDP account.

However, today's topic - DCA on Singtel. If one is to seriously do so and does not mind the shares being under their custody, you may wish to consider OCBC BCIP which charges $5 and Maybank MIP which charges SGD 1/1% for amount below S$1,000.

Now let's back to the topic. 

In the case study conducted by B on DCA on Singtel which is done on:

1. A 10-year period from the peak of 4.22 on Oct-07 till today

2. DCA done when dividends is given by Singtel (Jan and Aug)

In the post shared by B, there was several people that had dropped by and commented that the DCA should be done on a fixed amount rather than fixed units, which is true to reflect the actual concept behind DCA. 

Another thing I felt is the interval/frequency of performing the 'DCA'.

As the frequency (Jan & Aug), twice a year is relatively small. I feel that the DCA concept is not well made use of. To improve on the model slightly, I have done a tweak and had increased the frequency DCA is performed on Singtel.

On a side note, I've believe that the prices during the CD/XD period or weeks due to release of it's financial report are slightly irrelevant as the volume during such periods are relatively higher due to the increased speculators that are on board or shorting it in anticipation of it's result, which does not reflect it's prices well, hence explaining the increased frequency.

Thus, with the increased frequency, I believe that the DCA concept can be better make used of.

In the table below, I've controlled certain parameters for this exercise which is listed as such:

1. Amount of S$500 in each purchase.

2. An interval of 2 months between each purchase (ie. 6 purchase/year) 

3. Purchase conducted on first of every month (Aside first purchase of 4.22)

4. Dividends reinvested

Unchanged factor is:

1. Buying at the peak of 4.22 (10 October 2007)

2. Starting and Ending Duration (Oct-07 to Feb-18)

3. Price as of 17 Feb at 3.33

Note: Dividends for Jan will be added to Feb's amount for dividend reinvestment

The list ahead is very long, hence, please pardon me once again:

Page 1

Page 2

Page 3

As shown in the 3 images above, here's some conclusion:

I will round the total units to the nearest purchasable lot on SGX (Singtel10, Z77):

From the above set of data, we will derive with a P/L of $10,424.70

This translates to a P/L of 33.09%

However, this will only happen if your dividends are reinvested. 

If you notice, the P/L (dividends) I've labelled is negative. This is because the amount of dividends received at $11,406.13 is more than the the P/L of actual value $10,424.70. Which in another words, the recent price movement has caused the returns to be lesser than the original dividends received. 

However, you're still sitting on a profit of 33.09% based on your capital of $31,500

Two flaws represented by this set of data are the odd number of lots during each purchase and transaction fees that is excluded and definitely the chances of having your orders fulfilled.

Allow me to rectify these flaws one by one:

Adjusting the units purchased each time to the nearest 10 unit which can be purchased from the market (Singtel10,  Z77). We will have $883.86 lesser in capital injection. This will result in lesser dividends receive, lesser total units and higher average price. This will impact directly onto our returns for this activity. The updated tab now tells me that we will have an average price of $2.58 compared to the earlier. I will not be sharing the lengthy 70 odds column of data in the second example to avoid further confusion.

Nonetheless, you're still sitting on a P/L of 29.19% based on your entry price.

Next part, transaction fees:

Example 1:
Now let me play with the transaction fee (assuming that all these trade are executed by using the big brokers available around. 

The average transaction amount across the 10 years comes up to roughly $681.05

Taking that amount into consideration for the transaction fee imposed by the brokers around $25 + 0.0075% (SGX Access Fee) + 7% (GST) + Clearing Fee, we will derive with a sum of $27.04 for each trade. 

Total Transaction Fees = $27.04 x 63 sessions = $1,703.52

Now, this is massive transaction fees and it eats into the profit by nearly 20%! 

Nonetheless, having that said, We're still positive!!

Our new P/L with transaction fees in will come up to = $10,424.70 - 1,703.52 = $8,717.18

This will translate to a P/L of 27.67%

This work out to an annalized return of 2.9%

I do agree with B that this is nothing to shout about compared to our CPF OA account at 2.5% and not forgetting our SA. The key difference here is the liquidity and availability of the funds.  

Total Duration = 3785 Days (10 Oct 07 - 19 Feb 18)

Example 2: 
Average Transaction amount across 10 years: $662.12
Average Transaction Fees: $27.04
Total Transaction Fees: $27.04 x 63 = $1,703.52
P/L = 9193.48 - 1703.52 = $7489.96
P/L (%) = 23.77%
This work out to an annualized return of 2.15%, which is lesser than what our CPF account is able to provide us. 

Finally, in this exercise, I would now conclude that:
1. Compounding interest is really the 8th wonder of the world.
2. Panadols are indeed effective in this exercise
3. DCA is not a scam but a passive way of investing
4. Transaction fees does matters in this higher frequency and small amount orders
5. There is no foolproof method in buying stocks and that passive investing might not be better than active investing. Fortunately, for this exercise with Singtel, you does not lose out much.

Though this exercise, we see positive returns on both hands which might mean that this approach of DCA on Singtel might be good on your portfolio, I do have some thoughts which I've left out in the lengthy post on top.

With the increased frequency in this exercise, we also managed to obtain 2 positive results as compared to the negative return on B's case study. Adding on, with the dividends reinvested, we do see another different horizon to amount of shares we hold as well as the P/L.

I'm sure that we will be able to find better companies for this activity which I agree with B and Singtel is not bullet-proof despite Singtel being my greatest holding. We must remember that our average price, entry price and exit price matters in each investment.

With this 12,000 odd units from this tweaked DCA in this past 10 years and dividends reinvested, we will be able to receive roughly $175/month of passive income assuming Singtel's dividend of 17.5 cents is maintained and based on the average price of $2.50, we are looking at a yield of 7%.

Indeed, the numbers is really attractive.

However, if you have purchased this 12,500 when it's $2.50 in Feb-09, the dividends you've received in this 10 year be added to the bulk of sum you see here, which you can look at it in 2 different glasses - you Singtel shares cost you $0.74 each ($1.76 dividends) and in 5 years time (assuming dividends maintained), these 12,500 shares of Singtel would be free of cost :)

See the difference now? :)

Increasing stake in Singtel by 250%

It's a day till the release of Singtel's 3Q result.
Anticipating it? Pretty much.

Some mini bloodshed is seen in the recent days across the global market. While there is no sufficient supporting reasons for such, it is looking more like a technical correction and the market has recover very briefly today. For now, I still feel that this market we are seeing today belongs more to the over-valued region than it used to be. 

Well. I should first apologize as the numbers on the title might look rather deceiving.
If I own 5000 shares of Singtel and doing so - Increasing stake by 250%, it will essentially means that I'm adding 12,500 shares or in another words, plonking S$43,000 into Singtel.

However, as much as I'd wish to say that, sadly, that's not the case. I guess I will need a couple of years more before I can write the same thing with a different set of results.

I did increased my stake in Singtel by 250% and had accumulated 360 shares of Singtel at 3.42
But, base on my holdings of 140 shares previously, this will only means that I've accumulated another 360 shares from Singtel.

Rounding them up to the nearest lot of hundred at 500 shares.
With this event in place, Singtel had became my greatest holdings at this moment.


Based on my poorly done TA post on Singtel, I've queued behind the support line of 3.42 yesterday and the trade was fulfilled shortly after the market opens.

Based on this entry price, it had brought my average price of Singtel down to 3.55 from 3.84 when I got in earlier last year. Based on the usual dividends of 17.5 cents that Singtel have been giving out for the past years, this price will translate to 4.92% yield on my average price or 5.11% yield on the price I've entered (3.42).

Attractive yield? Pretty much for Singtel. But the next question will comes in if they are able to continue paying off their dividend of 17.5 cents with their FCF. Many investors would have known that Singtel might be having some problem in ensuring sustainable dividend based on the recent years free cash flow. Nonetheless, I believe in Singtel's highly paid management team in doing the job.

For an investor like we are, we will need to know what is going on and how this management is doing their job. In the recent days, Singtel is also said to increase it's stake on Bharti Airtel to 39.5%.

"Singtel will be allotted up to 85.45 million new equity shares in Bharti Telecom at 310 rupees apiece, which will raise its stake by up to 1.7 per cent for a total consideration of around 26.5 billion rupees (S$545 million).

The allotment, expected to close by next month, will see Singtel's economic interest in Bharti Airtel increase by 0.9 percentage point to 39.5 per cent.

...

Singtel's total stake in Bharti Telecom will increase to 48.9 per cent with this current investment, according to a press statement by Bharti Airtel."  - from Straits Time


As an investor, I view this move by Singtel to be a move for the longer term, which will be paid off in the next couple of years. With the intensive price war today in India's telco market, I believe that we will be able to see a couple of reds in the next few financial reports.

Singtel's 3Q result will be released in hours time, and we will be able to take a look at it when we wakes up tomorrow! If the results is poor, we should be able to see the support lines be retested once again.

Sigh.. this silly devil here is trying to buy before the results..


Attentive readers will find out that this purchase will not look like a nibble if I were to base this purchase on the weight of my portfolio. However, on my side, I'm trying to increase the amount of shares purchased each time in the late few trades to further reduce on transaction cost.

Time to strap my hands to myself!! No more itchy hand.. no more..

Read:
Singtel's Technical Analysis
Singtel - Special Dividend of 3.0 cents per share

ST News on Singtel increasing it's stake on Bharti Airtel can be found here

Singtel's Technical Analysis

Singtel, one of my favorite stock is the current most frequently debated topic based on the latest movement of it's share price and the tremendous increase in volatility in the recent days. Do pardon me, on my very first post on Technical Analysis, and to trading gurus and seniors, feel free to correct me should you have spotted any mistakes in this post :)

Coming to it, here, we see a very bearish chart from Singtel.

You can plot your own graph for free on InvestingNote as well!

With just a simple look at it, one will be able to easily tell that Singtel in currently in a downtrend.

The price today at 3.49 has breached both it's 20D MA (3.59) and 50D MA (3.63). As much as it had slightly breached the 3.49 mark, slipping to 3.48, immediate support can be seen building at 3.49 which have held the price up till it finally closes.


The Bolliger Band can be seen expanding much in the later days, which suggest that currently, the price are relatively volatile and if anyone notices, the lower band has also been breached with it's most recent price movement, suggesting that it might be oversold.

RSI at 28.45 also shows that it Singtel is currently at the oversold region. The negative MACD value we can see also tells us that the short term moving average is below the long term moving average. As per pointed above, this signals a downward momentum and Mr Bear is in action. 

Using the key Fibonacci Retracement ratio where potential areas of support could be seen at, we can see the next support level at 3.42, 3.38, 3.35 and 3.31, should it once again break the support at 3.49

I will standby at these beautiful levels, to queue behind while waiting to get some Singtel shares that is on promotion.


Now, let's take a look at the more esoteric indicators and see if tells any tale.

The MSI today (16.7594) also suggest Singtel is in the Oversold region.
However, if the downtrend is strong, this will also brings the MSI lower.

Taking a closer look, we will be able to find a relatively small money flow ratio that is below 1 if we work the formula backwards. Now this signal here is telling me that positive money flow is lesser than the negative money flow. In layman term, the money flowing out is greater than the money that is coming into it, which is not very healthy here.

Want something more esoteric?
Based on the chart, we have entered a relatively sharp zig-zac corrective wave based on Mr Elliot's theory and it seemed like we might be entering the end of a wave soon.
 


While waiting for the financial results for 3Q18 to be released, fundamental wise, all else remains equal apart from the latest news on it's cyber security business which is said to hit around $550 million in revenue this financial year.

Singtel's 3Q18 financial results will be released on 8th Feb 2018, which is 5 days away.

Cyber security is a good business that Singtel today is diversifying on, which will further reduce the dependence on mobile communication sector. The increased exposure in ICT will also reduces the risk of facing the declining revenue from TPG's entrant.

I remember one good phase from one wise senior - TA is all about the probability and not certainty. Hence, do take them as a pinch of salt and pardon me once again for this poorly done TA.

Do remember that the high can get higher and the low can get lower. The latter example is clearly exhibited today.

Singtel's chart from Google

If we look back into time, the last time Singtel enter the 3.4 range is 2 years back during January 2016 and back in early 2013. Doing a quick search, the last time (Jan 2016) Singtel entered this price region, is the period when China's stock market bubble back in 2015-16 exploded. (Yes, I like the word exploded.. hehe).

Hence, if we were put our glasses back on, today's market does not exhibit any significant trait that I know of that was as impactful as the China's market crash which might drag Singtel's price down back to this region.

And given that, Singtel in 2018 today, should be a company that is in a relatively well position compared to they are in 2016 with the cash on hand, reduced debt and divestment of Netlink Trust.

Nibble time.. Nibble nibble. Time to be a small little rat!

I do not recommend any buying or selling of any securities based on any post that I've written.
If you're buying in and not too sure why, do remember to find a reason to support your buying.
Buying for income? You have many other alternatives available.
Buying because it's the biggest company in SGX? It's now DBS.
Buying because it's backed by Temasek Holdings? There's more available. Click here to find out more

Straits Times news on Singtel Cyber Security Business can be found here.

Read:
Singtel - Special Dividends of 3.0 cents per share 

Singtel - Special Dividend of 3.0 cents per share

UPDATE (16/11/17)
Ex-Date: 20/12/17
Pay-date: 10/01/18 
Singtel's announcement on notice of book closure can be found here.

Singtel has released it's 2QFY18 Financial Results earlier today.

It is also declared that there will be a special dividend of 3.0 cents per share on top of usual interim dividend of 6.8 cents per share for the IPO and successful divestment of Netlink Trust. The 3.0 cents special dividend is much lower than what many has anticipated.

Net profit of S$2.9 billion was recorded in 2QFY18, with the recognition of S$2.0 billion divestment gain from Netlink Trust. If we were to exclude the one-time gain from Netlink Trust, the underlying net profit for 1H2018 of 929 million is however, 4.1% lower than 1H2017's 969 million. It's also noted that the competition in India continues to affect the profit for Singtel.

With a special dividends of 3.0 cents, they've paid out 489.84million in dividends out of the S$2.0 billion divestment gain, which is about 24.4% of the gains. The remaining balances are used for debt repayment to lower gearing and to improve FCF.

Airtel has also announced on the merger with Tata Teleservices' consumer business earlier last month. The proposed merger will include transfer of all the customers and assets of Tata to Airtel, further augmenting Bharti Airtel’s overall customer base and network. It will also enable Bharti Airtel to further bolster its strong spectrum foot-print with the addition of 178.5 MHz spectrum (of which 71.3 MHz is liberalised) in the 850, 1800 & 2100 MHz bands.

Using the proceeds from the divestment, the debt gearing is also reduced from 26.8% in 1QFY18 to 23.8% in 2QFY18 with strong FCF (free cash flow) at S$2,011 million. This is a 12% increment from it's previous FCF of S$1,294m. Net profit for 1HFY18 till date stands at $1,839m and EPS for FY2018 stands at 0.112 cents till date.

Singtel Q1FY2018

Singtel Q2FY2018 

Singtel's Australia associate, Optus, has reported a fall of profit to $347 million despite network investments delivering 75,000 new 4G customers which is due to the lower equipment sales as customers held out for anticipated smartphone launches as well as adopted more handset leasing plans.

With the upcoming TPG that will be potentially start their services in 2018, I believe that we will be able to see more drop in their net profit from it's Singapore Mobile Communication sector. Currently, at S$506 million revenue, the Singapore Mobile Communication Sector represents a 11.5% of the group's total revenue of S$4,370 million.

I believe that even with the upcoming drop in net profit, it should not be a very big issue for Singtel. In time, when the India telco recovers, I believe that it will be able to cushion the fall of profit from TPG's entrance.

Singtel is currently trying to channel much of their businesses towards ICT transitioning out of the standard mobile communication business. The focus on ICT along with the diversified portfolio and healthy balance sheet, Singtel remains as a relatively good company for me.

I continue to love Singtel and would be glad to accumulate more of Singtel should the price fall.


Singtel Financial Result Presentation can be found here.
Singtel News Release can be found here.
News on Airtel and Tata's merger can be found here.