How are you managing your portfolio now? SGXcafe will do it for you intelligently.

Sign up for free now!

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**

Fundamental Metrics - See More, More Easily

For each listed stock in SGX, there is a profile page (e.g. DBS) that displays the valuation and financial metrics of that stock. Personally, I use it often to learn the historical and current fundamental values of the stock. However, there are limitations to it. 1) Due to space constraint, I can only display partial information. For example, for Valuation metrics, I only show 52 weeks high, low, median, ...

Are You Using The New Stock Screener? Why or Why Not?

Since the introduction of the new stock screener, I have received numerous requests to add more metrics and/or to add more ways to build the constraints so that different strategies can be easily implemented using the new screener. Hence the number of metrics have grown, from the initial 30 to the current 60+ different metrics covering both technicals and fundamentals. The number of ways to build the ...

A Course All Investors Should Attend

I have always wanted to attend the Value Investing Mastery Course (or VIMC) by BigFatPurse as I have heard many good things about it. However, as I am working and living in Tokyo, there was no opportunity for me to attend. Luckily for me, they recently released eVIMC, which is the e-learning equivalent of the popular VIMC. Personally, I have always preferred e-learning over physical lectures as it ...

By evankoh posted on 15 Feb 2016 - 1,955 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

Fundamental Metrics - See More, More Easily

For each listed stock in SGX, there is a profile page (e.g. DBS) that displays the valuation and financial metrics of that stock. Personally, I use it often to learn the historical and current fundamental values of the stock. However, there are limitations to it. 1) Due to space constraint, I can only display partial information. For example, for Valuation metrics, I only show 52 weeks high, low, median, ...

Are You Using The New Stock Screener? Why or Why Not?

Since the introduction of the new stock screener, I have received numerous requests to add more metrics and/or to add more ways to build the constraints so that different strategies can be easily implemented using the new screener. Hence the number of metrics have grown, from the initial 30 to the current 60+ different metrics covering both technicals and fundamentals. The number of ways to build the ...

A Course All Investors Should Attend

I have always wanted to attend the Value Investing Mastery Course (or VIMC) by BigFatPurse as I have heard many good things about it. However, as I am working and living in Tokyo, there was no opportunity for me to attend. Luckily for me, they recently released eVIMC, which is the e-learning equivalent of the popular VIMC. Personally, I have always preferred e-learning over physical lectures as it ...

2 reasons to stay away from Snap's IPO

*Posted 12 hours ago* - dano

Blog Post

Equity Management #3 : The Dividend Discount model is overrated

*Posted 12 hours ago* - christopher

Blog Post

First big spending in 2017

*Posted 16 hours ago* - poorlearnrichsg

Blog Post

Three things about growing wealth

*Posted 17 hours ago* - sgwealthbuilder

Blog Post

Recent Action - Kingsmen & FY16 Results Review

*Posted 20 hours ago* - bhalimking

Blog Post 5mz

See More Cafe Posts

Blog Post

Equity Management #3 : The Dividend Discount model is overrated

Blog Post

First big spending in 2017

Blog Post

Three things about growing wealth

Blog Post

Recent Action - Kingsmen & FY16 Results Review

Blog Post 5mz