Some dividends are not meant for investors to keep forever or spend them off??? (2)

Read? Some dividends are not meant for investors to keep forever or spend them off???


S-REITs and their right issues.

What is the issue with right issues for not-so-wealthy retirees who are depending on investment income to support their household expenses;  they better know what is dilution at personal investment level.

It is same as the loud voice in the main stream shouting on maximizing your CPF for secured and happy retirement. Right?

Credit to one of Directors in BigScribe who dare to invite Uncle8888 to participate in their Talk on Optimizing CPF For Your Retirement and knowing that he is not going to sing the same song!

Are you Hen or Pig?

The Hen & the Pig Go To Breakfast

A Hen and a Pig were sauntering down the main street of an Indiana town (yes, this is another shaggy dog story!) when they passed a restaurant that advertised “Delicious ham and eggs: 75 cents.” “Sounds like a bargain,” approved the Hen. “That owner obviously know how to run his business. “It’s all very well for you to be so pleased about the dish in question,” observed the Pig with some resentment. “For you it is all in the day’s work. Let me point out, however, that on my part it represents a genuine sacrifice.”

Read? The Difference Between Smart Financial Advice and Smart Financial Advice For You (3)

Some dividends are not meant for investors to keep forever or spend them off???

Most of us will love dividends. Me too!


But, some dividends are not meant for investors to keep forever or spend them off.

Investors are just custodian for this type of dividends for a few years. After that these dividends will be taken back either part of them or all of them to the CEOs as capital for re-investment "opportunities".

CEOs will promise investors "bigger" dividends for them to keep as custodian for another few more years.

And the game continues .....

Read? Right issues


Great CEOs are great allocator of capital for growth and they don't keep coming back to long-term investors to ask for more capital.


Read this book? The manual of Ideas


If you are not aware or have read something new today, for a moment, think silently and deeply about it.


Allocator of capital or Alligator of capital?

Right issue back again (6)

Read? Right issue back again (5)

Test of retail investor's mind and heart

Rights issue can be a test of retail investor's mind and heart. Are they in harmony?  Is the mind or heart controlling the retail investor?

The mind may say "No". It is like throwing good money after bad money; but the heart is unwilling to cut and go and then seek for the next opportunity.

So it is either cut and go as we don't need to win back in the same manner that we have lost it or sell the rights to lower the holding capital cost at diluted interests.

Right issue back again (5)

Read? Right issue back again (4)

As retail investors it is much harder to think how our interests in the company can be diluted by not fully subscribing to rights issue.

Here is the story of BB and easier to see why?

BB has a 9% stake in Company A and was given a Board seat due to the 9% holding in the company.

One day, Company A does a 1 for 1 rights issue.

BB's Investment Manager thinking that he was smart. He sold the rights and made millions of dollars out of it.

He went to his boss to tell him the "Good" news.

Investment Manager: "Boss, we have made millions of dollars from selling those rights. So will I be expecting a special year-end bonus?"

Boss: "You idiot! We have just lost our Board seat  as we now only have 4.5% stake."

Get it?

Anyone need more examples? let me know .. I can then think more about it.

Right issue back again (4)

Read? Right issue back again (3)

Before rights issue, e.g. we have X% ownership of the company and if we subscribed to all our entitled rights issues we will still maintain X% ownership of the company but at higher capital holding cost.

But, if we don't fully subscribed to rights issue, then after rights issues our interests in the company i.e. X% ownership is diluted over the entire holding period.

Making some money out of selling rights doesn't negate the impact of diluted interests in the company if we still stay vested in the company over long-term.  That is the reason why I always subscribed fully to any rights issues and have not sell away any rights to lower holding capital cost or thinking that I could made some profits by selling the rights.

So don't get confuse over stock price appreciation due to stock market actions and interests in the company i.e. X% ownership. Interests in the company will entitle us to any future corporate action e.g. the subsequent rights issue,  bonus issues, stock split or consolidation,  etc. These are two different thing - stock price appreciation due to market action and interests in the company. Get it?

Right issue back again (3)

Read? Right issue back again (2)

Selling Rights?

Once you don't have the money to subscribe to the rights issue, you have become a sucker; but by selling away the rights, you just become a sucker slowly as your interests are diluted anyway.

Right issue back again (2)

Read older post? Right issue back again

The best way for companies to expand is through their own internal resources and/or increasing their debts to a level without worrying their lenders or bankers. But, when companies can't expand through their own internal resources or raising more debts, they will have no choice but either do private placement or discounted right issues.

Private share placement is obviously suck for existing shareholders and there is no need to debate on it.

But discounted right issues are not so straight forward but may be just fooling existing shareholders to put up more cash to prevent being diluted i.e. higher investment cost to hold more or less the same percentage point in the enlarged base after the right issues.

At the point of right issues, there is no gurantee despites the discount being offered in the rights issue that the company will meet its growth targets or get substantial returns from their increased investments as communicated. If company failed to meet the planned growth target, then EPS could get hit much harder due to the effect of unexpected future reduced profits and higher equity base. One must take serious note that the higher equity base will always be there regardless of its future earning.