Hold Your "F.I.R.E" , Your Dividend Has Just Been Cut By 81.5% !!

Yes, not by -8 % or -38% but -81.5% !! This is what happened when APPT (Asian Pay TV Trust) announced their result and dividend payout for next quarter this morning.

I think most of the so-called " income investors " (including me)  were stunned by this sudden news and of course, the share price dropped by -49.2% and closed at $0.16 today. I still have a small position of this stock in my portfolio ( 0.4% ) and expected it (dividend) to be cut by 50% to around 3 cts which is a more sustainable level and close it's FCF and may still give us an approx 10% yield at the price of 30+ cts . Although it just a small position, but sitting with such huge "paper loss "now is no joke and a really painful lesson learned, I am sure those vested will have the same feeling.

Imagine if you have a huge position on this stock and with much-concentrated portfolio, you will really need to hold your F.I.R.E.

My friends, Kyith (from InvestmentsMoat.com) and Royston (from The Motley Fool.sg) both have a good write up about these issues of APPT and its story.

Asian Pay Television Trust (APTT) Dividend Yield Cut from 20% to 3.8% (link from Investmentsmoat.com )

"Dividing the dividend per share by the share price we arrived at a dividend yield of 20.6%. That is a whopping dividend yield!

Now according to the formula, and my annual expense is $24,000/yr, then all I need is for APTT to deliver consistently this 20.6% dividend yield and for APTT to grow and keep up with a 3%  inflation rate. The total return is 23.6%/yr.
So the amount that I need to reach financial independence is 24000/0.206 = $116,504.
That is an unbelievable sum of money.
You could really motivate someone by telling them, hey just save hard, put your $25,000/yr wealth-building effort into APTT for 4.5 years and you will reach financial independence.
The problem is can they keep up with this?"

Shares of Asian Pay Television Trust Crash As Massive Cut In Distributions Announced ( link from ww.fool.sg )

"In hindsight, the announcement was probably not surprising if investors had noticed the red flags over the past few quarters, ranging from the declining core business, weak financial numbers and ratios, elevated debt levels, weak operational metrics and insufficient free cash flows to sustain the high distribution payouts.
The lesson learnt here is to be very careful about investing in a company with a core business which is suffering. Shares that are offering a high historical yield is by no means an accurate measure of the merits of a company as distributions can always be cut suddenly and without warning."
<Image credit to sharejunction.com>

There is always  "value traps" if one just looks at the dividend yield and not the sustainability or from the company's ability to generate cash flow to pay for it. Look at what happened to the other two business trusts who use to offer a very "juicy" dividend, ie. Rickmers Maritime Trust and HPH (Hutchison Port Holding Trust ) (link).

One should expect the "dividend cut" from companies they invested from day one and do a "stress test " on how much they could take if the dividend payout is going to be cut, it is nice to have "buffer " when you calculate how much you need to achieve the F.I.R.E.  Also, diversification (across different industries ) may assist in cushioning the impact of the dividend cut from certain industries as some may do well in the different business cycle.  Sometimes, my friends ask me why do I have so many companies in my portfolio? Well, I may not know in detail on all these companies I have vested but doing so make me sleep well at night.

Cheers !!

Quote Of The Day

“Value traps, which are assets that look “appealing” based on a combination of metrics that could include price-to-earnings ratio, price-to-book ratio, or the dividend yield, can be portfolio wreckers. If you aren't digging deep enough to understand why assets are priced the way they are, you could be missing the big picture……These "good deals" are nothing more than a wolf in sheep's clothing.  By The Motley Fool.com


This chart has been sitting in my portfolio excel sheet for quite some time which I didn't share it on my quarterly portfolio & dividend update. Guess it might be good to share it here ...


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