Subscribe to RSS feed

In the previous article, I looked at how**Debt-to-equity** and
**Operating Cashflow** (referred to as DER and OC from hereon) would influence
**Dividend Per Share** (DPS). In particular, I looked at see how change of DER and change of OC in year X influences the DPS in year X+1.

In this article, I would like to focus on the how absolute DER and absolute OC in year X could be a predictor of DPS in year X+1.

**Methodology**

For chi-square test, discrete data is required. In the previous article, I simply chose zero as the splitting point, which was reasonable since we were looking at change of DER, change of OC, and change of DPS. I can continue to use zero for change of DPS, but I would need to find a new, reasonable splitting point for absolute DER and absolute OC. To do that, I would simply iterate through all possible splitting points and choose the splitting point that returns the lowest p-value with one constraint, that is ensuring that each bin would have at least 10% of the original data after split.

**Debt-to-equity Ratio's influence in numbers**

P(positive DPS change) = 61.8% (or 899 / 1454)

P(positive DPS change | DER >= 79.3) = 57.3% (or 160 / 279)

P(positive DPS change | DER < 79.3) = 62.9% (or 739 / 1175)

p-Value = 0.086

**Debt-to-equity Ratio's influence in English**

When DER is higher than or equal to 79.3%, there is a 57.3% chance of having the same or higher dividends the following year, whereas with a DER lower than 79.3%, there is a 62.9% chance of having the same or higher dividends the following year.

Basically, the result is stating that having a lower debt-to-equity ratio increases the chance of having better dividends the following year,**but** with a p-value of 8.6% (i.e. 8.6% probability that this result is caused by random chance).

**Operating Cashflow's influence in numbers**

P(positive DPS change) = 62.7% (or 1027 / 1638)

P(positive DPS change | OC >= 152) = 77.6% (or 204 / 263)

P(positive DPS change | OC < 152) = 59.9% (or 823 / 1375)

p-Value = 5.27E-8

**Operating Cashflow's influence in English**

When the OC is larger than or equal to SGD 152 million, there is a 77.6% chance of having the same or higher dividends the following year, whereas with an OC smaller than SGD 152 million, there is a 59.9% chance of having same or higher dividends the following year.

Basically, the result is stating that having a larger OC significantly increases the chance of having better dividends the following year,**and** with a p-value of virtually 0, absolute OC is certainly an important value to look at if you are interested in dividends.

**Conclusion**

We can conclude a few things from the above results:

1) Absolute value of DER is not that influential in determining next year's dividends.

2) Comparing the absolute DER and change of DER (in the previous article), it seems to indicate that every company has a different sweet spot for DER, hence its change is more important than its absolute value, at least for forecasting dividends for the following year.

3) Not surprisingly, companies with a larger OC tend to give the same or higher dividends the following year. This is somewhat related to another article where I found that companies with a larger market capitalization tend to be more reliable in their dividends payout.

Like

0 likes

0 comments

Next Article > < Previous Article

Dividend Strength Estimator Growing Dividends - Does Debt-to-equity ...

List All Articles**Other articles by evankoh**

SGXcafe Now Supports Multiple Portfolios

Recently, quite a few users have independently requested for the ability to have multiple portfolios in a single account. It seems typical to have multiple investment accounts, such as CDP, CPF, and SRS. Although this seems like a straightforward feature, it actually requires significant amount of time and effort to build because: 1. SGXcafe was built with the assumption of one portfolio per account, ...

Frequently Asked Questions

I regularly receive questions related to SGXcafe and often the same questions are asked over and over again, hence I think it is time to consolidate them in one place. This article will serve as a placeholder for FAQ and I will update this article as I receive more questions. How do I use SGXcafe? While I constantly add new features to SGXcafe, they will be centered around two themes: Helping you manage ...

Quick Features' Update: Who owns what, 52-weeks high-low, disabling cash balance and more

It have been two weeks since the last article, and I thought I should just give a quick update of the improvements made to SGXcafe over the last two weeks in case you think that SGXcafe is becoming inactive :) In fact, on the contrary, I have been actively adding new features! I will just highlight a few features that might be of interest: 1) Who owns this stock? At the point of writing, there are ...

By evankoh posted on 15 Feb 2016 - 2,117 views

In the previous article, I looked at how

In this article, I would like to focus on the how absolute DER and absolute OC in year X could be a predictor of DPS in year X+1.

For chi-square test, discrete data is required. In the previous article, I simply chose zero as the splitting point, which was reasonable since we were looking at change of DER, change of OC, and change of DPS. I can continue to use zero for change of DPS, but I would need to find a new, reasonable splitting point for absolute DER and absolute OC. To do that, I would simply iterate through all possible splitting points and choose the splitting point that returns the lowest p-value with one constraint, that is ensuring that each bin would have at least 10% of the original data after split.

P(positive DPS change) = 61.8% (or 899 / 1454)

P(positive DPS change | DER >= 79.3) = 57.3% (or 160 / 279)

P(positive DPS change | DER < 79.3) = 62.9% (or 739 / 1175)

p-Value = 0.086

When DER is higher than or equal to 79.3%, there is a 57.3% chance of having the same or higher dividends the following year, whereas with a DER lower than 79.3%, there is a 62.9% chance of having the same or higher dividends the following year.

Basically, the result is stating that having a lower debt-to-equity ratio increases the chance of having better dividends the following year,

P(positive DPS change) = 62.7% (or 1027 / 1638)

P(positive DPS change | OC >= 152) = 77.6% (or 204 / 263)

P(positive DPS change | OC < 152) = 59.9% (or 823 / 1375)

p-Value = 5.27E-8

When the OC is larger than or equal to SGD 152 million, there is a 77.6% chance of having the same or higher dividends the following year, whereas with an OC smaller than SGD 152 million, there is a 59.9% chance of having same or higher dividends the following year.

Basically, the result is stating that having a larger OC significantly increases the chance of having better dividends the following year,

We can conclude a few things from the above results:

1) Absolute value of DER is not that influential in determining next year's dividends.

2) Comparing the absolute DER and change of DER (in the previous article), it seems to indicate that every company has a different sweet spot for DER, hence its change is more important than its absolute value, at least for forecasting dividends for the following year.

3) Not surprisingly, companies with a larger OC tend to give the same or higher dividends the following year. This is somewhat related to another article where I found that companies with a larger market capitalization tend to be more reliable in their dividends payout.

Like

0 likes

0 comments

Next Article > < Previous Article

Dividend Strength Estimator Growing Dividends - Does Debt-to-equity ...

List All Articles

SGXcafe Now Supports Multiple Portfolios

Recently, quite a few users have independently requested for the ability to have multiple portfolios in a single account. It seems typical to have multiple investment accounts, such as CDP, CPF, and SRS. Although this seems like a straightforward feature, it actually requires significant amount of time and effort to build because: 1. SGXcafe was built with the assumption of one portfolio per account, ...

Frequently Asked Questions

I regularly receive questions related to SGXcafe and often the same questions are asked over and over again, hence I think it is time to consolidate them in one place. This article will serve as a placeholder for FAQ and I will update this article as I receive more questions. How do I use SGXcafe? While I constantly add new features to SGXcafe, they will be centered around two themes: Helping you manage ...

Quick Features' Update: Who owns what, 52-weeks high-low, disabling cash balance and more

It have been two weeks since the last article, and I thought I should just give a quick update of the improvements made to SGXcafe over the last two weeks in case you think that SGXcafe is becoming inactive :) In fact, on the contrary, I have been actively adding new features! I will just highlight a few features that might be of interest: 1) Who owns this stock? At the point of writing, there are ...

FY'16 (Apr'16-Mar'17) Portfolio Results

*Posted 12 hours ago* - dano

Blog Post

Other Sell transactions for Mar 2017

*Posted 19 hours ago* - financesmiths

Blog Post

AIMS AMP Capital Industrial REIT is a fine investment for income.

*Posted 23 hours ago* - ak

Blog Post o5ru

Singapore gold bullion market

*Posted 1 day ago* - sgwealthbuilder

Blog Post

Equity Management #7 : Taking on more risk from a benchmark portfolio.

*Posted 1 day ago* - christopher

Blog Post

See More Cafe Posts

Blog Post

Other Sell transactions for Mar 2017

Blog Post

AIMS AMP Capital Industrial REIT is a fine investment for income.

Blog Post o5ru

Singapore gold bullion market

Blog Post

Equity Management #7 : Taking on more risk from a benchmark portfolio.

Blog Post