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Saving and Investing towards Financial Independence in Malaysia

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Share Bonus Issues, Stock Splits and Free Warrants

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Filed Under: Dividends, FI/RE, Investment 2

What is a Bonus Issue?

A bonus issue is an offer of free additional shares to existing shareholders. They’re basically gifts to shareholders of the company, rewarding you and me with additional shares at no cost.

The bonus shares are issued and paid out of the retained profits of a company.  They’re issued as a ratio, based on the number of shares held by the shareholder. As an example below, Cypark handed out bonus shares at a ratio of 2 : 1. For every 1 share held, shareholders get 2 bonus shares for free.

Why are Bonus Shares Issued?

  1. To reward shareholders
  2. Boost investor sentiment and market confidence
  3. Increase liquidity
  4. Adjust the stock price to a reasonable range

As an existing shareholder, you may immediately sell the bonus shares the moment they are issued. This is why companies sometimes issue bonus shares in lieu of cash dividends. Or if you’re investing in the company for the long term and do not have immediate liquidity needs, you keep your increased shareholding.

It is however important to note that a share bonus issue does not involve cash flow. It increases the company’s share capital but not its net assets. It does not impact you as a shareholder materially.

In addition to this, a bonus issue increases the number of outstanding shares in the market. This in turn, will result in an instant decrease in the stock’s price, making the stock more affordable for retail investors.

What Should You Do with Your Bonus Issue

If like me, you’re a long term investor in the company and business, you’ll want to do nothing with the additional shares from the bonus issue.

Selling the bonus shares will lower your percentage stake in the company, giving you less dividends and fewer shares in terms of percentage in the stock. If this is difficult to understand, imagine every other shareholder, like you, receives the same bonus shares. If you sell yours and nobody else sells theirs, your holdings are less compared to everyone else.

So if you’re investing in the company for the long term, do nothing with the bonus issue, and be happy.

Difference Between a Bonus Issue and Stock Split

Both have many similarities as well as differences. Stock splits only serves one purpose – To increase the number of shares. Ie. To adjust the share price of the company to a lower level.

Many Malaysian investors still believe a company like Nestle whose share price is RM145 per share is “expensive”. Investing RM10,000 into Nestle or a low price share is the same thing. You’re investing RM10,000. End of story. 

When a stock is split, there is no change in the company’s cash reserves. In contrast, when a company declares a bonus issue of shares, the bonus shares are paid for out of the accumulated profits of the company, depleting reserves.

Similar to a bonus issue, if you do not have immediate liquidity needs, you should just hold on to your split stocks to maintain the status quo in terms of your percentage holdings in the company.

Warrants, Free or Otherwise

Scientex Bonus Issue and Free Warrants
Scientex-Berhad-AnnouncementDownload

Above is a 2020 example of Scientex’s announcement for a bonus issue plus free warrants.

In the example, as an existing shareholder, you receives two bonus shares for every one existing share held. In essence, splitting one share into three.

And in this particular instance, the company is also awarding free warrants. One for every five existing shares. However, it is important to note that the bonus shares are not entitled to the free warrants.

The warrants in this case are given as a bonus for investors, you can keep it to exercise at a later date or sell immediately.

Now, I won’t be touching the warrants you see on the exchange where small price swings can earn you big amounts of money or lose you the shirt on your back. If you’re new and just starting to invest, please do not touch those.

End.

I hope this clears the air on bonus issues, stock splits and a little on warrants.

TL;DR – Bonus issues are a plus for the company, stock splits are neutral. Do nothing with both if you’re investing in the company for the long term.

Happy investing!

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Funding Societies – Risks, Defaults and Diversification

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Filed Under: Portfolio - Freedom Fund, Financial Independence, Investment, Other Investments 8

Funding Societies Malaysia

This will be an update to my earlier post on Funding Societies, Malaysia’s (largest?) P2P platform.

As I have posted and shown earlier, my investments in Funding Societies has netted me an annualised return of 13.12%. As of today, it has increased slightly to 13.15%.

The referral bonus from you guys does not affect that 13.15% return. 

To put the returns into perspective, my IRR and average return for the Freedom Fund is at the 12% mark for the past few years.

 

Calculating Simple and Effective Interest Rate

Funding Societies Effective Interest Rate
Simple vs Effective Interest Rate

 

From the example, interest returns of RM10,000 for an RM100,000 investment opportunity (effective investment exposure of RM55,000) gives you an effective return as high as 18% (RM10,000 / RM55000).

The monthly repayments help reduce your risk exposure every month while increasing your investment returns. Best of all, if you choose to reinvest the monthly repayments you receive, you’ll compound and achieve even higher returns.

The folks at Funding Societies have a handy explanation for simple vs effective interest rates. The effective interest rate comes in handy when you want to compare your investments vs other choices in the market.

Default and Diversification

Most of you are worried about the risk involved when lending your hard-earned money to businesses you know almost nothing about. And you should be.

However, you’d be happy to know that the regional default rate as of November 2018 is at 1.02%.  Regional meaning Malaysia, Indonesia and Singapore.

Even more good news, the default rate in Malaysia is 3 out of 300 loans. That is 1.0%. With that kind of risk and return rates, I hope you’ll be able to make a more informed decision.

I do expect the default rate to increase in the near future as more businesses seek funding through the P2P network. As for me personally, I’ve yet to have a loan default in my portfolio.

Defaults are normal in the P2P lending industry so the key to success for us as investors is to DIVERSIFY.  The loans from Funding Societies give your returns anywhere from 10% to 16%.

I personally use the Auto Investment Bot provided by Funding Societies Malaysia.

I set my parameters as follows:

  • RM300;
  • A minimum investment period of 1 month;
  • A maximum investment period of 24 months;
  • At least 12% simple interest rate; and
  • At most 18% simple interest rate.

Signing Up – RM50 BONUS

Signing up to be invest is a breeze. Just head over to Funding Societies, and all you need is your IC / passport number, an email, and your mobile number.

Additionally, you’ll receive a bonus RM50 when you sign up with my code j1mwa37p

The terms? You’ll just have to invest a collective amount of RM1,000.

End.

I’ve been using Funding Societies for close to a year now and that 13.15% return is real. If you’re able to stomach that minuscule default rate they have right now, I think this would make a good investment alternative.

Again, thank you, everyone, for using my code upon registration.

I’ve gotten messages of concern from many of you advising against posting my referral bonus. But my aim is to always be as transparent as I can. I’m not recommending P2P for the referral fees.

Tenaga Nasional Berhad (TENAGA) – Our Electrical Giant

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Filed Under: Dividends, Best Dividend Stocks in Malaysia, Investment, Portfolio - Freedom Fund 0

Tenaga Nasional Berhad (TENAGA 5347)

TENAGA is the largest player in generating and providing electricity in Malaysia. I would argue to the point of being monopolistic.

They’re diversified geographically through equity ownership in the UK, Turkey, Saudi Arabia, Kuwait, India an Indonesia and Pakistan.

The company’s profits are tied heavily to foreign currency exchange rates, coal and gas prices.

The Numbers

TENAGA 2017 Financial Summary 5 Year
TENAGA 2017 Financial Summary

Increasing Profits Every Year

The electrical giant has been generating increasing revenue and profits consistently for 6 years now. One of the key criteria when I pick a stock to purchase.

With increasing profits comes increasing dividends for me as a shareholder.

Increasing Shareholder Equity Every Year

For 6 years now, TENAGA has consistently increased its Shareholder Equity also known as Net Assets annually. This is another huge check mark in Tenaga’s favor. 

We as shareholders will want a company that is constantly increasing its net assets. More assets mean more ways of generating income and also increase in stock prices.

Borrowings and Gearing

Total borrowings has increased to RM38.8 billion in 2017 with the gearing at 40.3%. An increase in borrowings is only worrying when the revenue decreases.

I do hope to see the gearing reduce to below the 40% mark in the future though.

Dividend Growth Perspective

TENAGA is a huge company, generating megawatts in electricity and dividends to its shareholders.

With the increasing profits every year, I’m not worried about the company delivering proportionally increasing dividends every year.

Valuation

At the time of writing, TENAGA is trading at RM13.980, at a P/E of 11.49.

The company is a little undervalued at the moment. I’ll continue to monitor the stock and purchase more when it drops below the RM13 mark again.

 

End.

TENAGA
Bought Price – RM14.12
Current Price – RM13.98
Capital Gain – (-0.99%)
Total 2018 Dividends – RM516,80
Dividend Yield – 3.66%

Disclosure: I hold 1,000 units of TENAGA shares in my Freedom Fund portfolio.

I will continue to hold onto TENAGA and look out for buying opportunities.

As always, my opinions and strategies are never intended to be a buy/sell recommendation. The strategy used has worked for me and it is for you to decide if it can be implemented into your own financial plan. Always do your own research and due diligence before investing.

A list of good dividend stocks in Malaysia can be found hERE.

Review of 2018

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Filed Under: Dividends, Financial Independence, Investment, Portfolio - Freedom Fund 2

Goals

2018 – Goals Dicapai

“Moving forward, maintaining that 4.5% yield will be the goal.”  – myself

In 2017’s ending post, I set myself the goal of maintaining my 4.5% yield.

I’ve managed that and then some. 4.92% to be precise.

Total dividends went from RM16K in 2017 to RM18K in 2018. A 13.62% increase.

2019 Goals – Financial Independence

  • Dividend yield > 5%
  • Total dividends > RM20,000 p.a.

I’ll be looking to break the 5% mark in 2019 with more savvy purchases. Got my cash in hand to start buying soon with the current downturn in the market.

As part of my push towards F.I. (“Financial Independence“), I’ll be aiming to have my dividends reach RM20,000 in 2019.

My FI goal is to have RM36,000 in passive income per annum. I’m halfway there in 2018 with RM18,000 in dividends.

I can’t wait for my dividends to snowball in the next few years and achieve FI by the age of 35. That’s when it’ll get interesting as I will have extra income to delve into riskier investments ie. startups.

Investment in the KLSE

2018 has been a wild ride for stock investors. The last few months, especially.

In fact, due to the recent slump in the market, my portfolio is in the red for 2018.  To the sum of about RM20,000.

I’m of course talking about capital losses. ie. unrealized losses. 

This would be a good time to remind everyone of the significance of long-term investing and holding power.

When you invest, make sure you have the ability to hold a stock for at least 10 years. Even better, have cash on hand to take advantage of the drop in prices during recessions.

Always stay invested.

My Portfolio

Freedom Fund – RM443,435.79
IRR – 8.60%
Dividends – RM18,072.25
Dividend Yield – 4.92%

If you haven’t already, I’d like to invite you to have a look at the Freedom Fund. Take notice of the increase in yields over the years.

Overall, the Freedom  Fund is still making money, to the tune of 8.60% per year. This includes both capital gains as well as dividends.

8.60% still isn’t good enough. My main focus right now is to catch up and reach the 10% mark.

Dividend Magic – the site

Dividend Magic started out as a place of accountability for me personally. To keep me and my investing honest and truthful.

To have a public space on the interwebs to show Malaysians that investing isn’t difficult. To demonstrate that if you’re disciplined in your investing, you’ll have a steady source of passive income that will see you through the rest of your life.

I’m happy to have built a nice community here where everyone is able to chat and discuss in a non-toxic environment. Grateful to have met many awesome people in 2018 and looking forward to 2019.

FOLLOW

If you haven’t already, follow me on Facebook and Instagram to keep up with everything else about me. You’ll see a different side of Dividend Magic on those platforms.

End.

Dividend Magic - We can do it!
Rosie the Riveter

As we head into 2019, I hope most of you who’re reading have started investing. Be it in stocks or other assets.

Post your portfolio value, dividends and dividend yield here and I’ll hold you accountable. We will revisit it again together at the end of 2019 and see how everyone is doing.

I’ll keep it simple and title all year-end posts – A Review of 201… 

Thank you for reading as always. To 2019!

Oribe Sushi Review – The Best Omakase in KL

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Filed Under: Travel, food and the finer things in life 0

ORIBE – Getting There

Oribe
Ground Floor
Block C-1
Vipod Residences
No.6, Jalan Kia Peng
50450 Kuala Lumpur

Lunch: 12pm – 3pm
Dinner: 6pm – 11pm

Reservations: 03-2181 4099

My Experience at ORIBE

Went to Oribe Sushi for the second time on 20 December 2018 for a pre-birthday celebration. Reached a little early at 11.45 pm.

I made a reservation at the counter for a better experience. We ordered 2 different sets – Iga and Oribe with plans to share.

In hindsight, I wish I had chosen the Omakase set. 

Iga –

  • Appetizer
  • Steamed Egg Custard
  • 8 pcs of the Chef’s Specialty Sushi
  • Sushi Roll
  • Miso Soup
  • Dessert

Oribe –

  • Appetizer
  • Sashimi
  • 2 Sides
  • Steamed Egg Custard
  • 5 pcs of the Chef’s Specialty Sushi
  • Miso Soup
  • Dessert

Arranged in no particular order, feast your eyes on the wonders of Omakase.

It means leaving it up to the chef to serve you.

And if you didn’t already know, the pics uploaded from Instagram are scrollable. 

Sashimi, Sushi

The Chutoro and melt-in-your-mouth Otoro were the highlights for both the sashimi and sushi for me.

Every piece was meticulously prepared by Chef Yasu. He explained each dish as he served them right in front of us.

Review on Oribe

The ingredients were all really fresh. Seafood is flown in directly from Japan. They make their own wasabi and garnishes.

You can tell that the chefs and owners are passionate about Japanese food through their well-thought-out menus and pairing of foods.

Oribe Sushi KL
The damage

The damage for two persons was RM542.90. It is pricey especially since we did not even go for the Omakase set.

Amex is accepted here for your cashback peeps.

Could’ve eaten free-flow wagyu at Hanare at an RM100 discount.  But! That being said, Oribe is well worth the price. The seafood served was fresh, very fresh and the attention given by the chefs and staff was tip-top.

If you’re planning to stop by Oribe, please make a reservation in advance via the phone number above. Get them counter-seat. Trust me. 

P.S. Use your hands when eating sushi. It’s the only way.

All My Food Reviews

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Cryptocurrency Portfolio Update – December 2018

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Filed Under: Dividends 0

My Cryptocurrencies (A Short Update)

The last update was December 2017. A year ago. Cryptocurrencies aren’t at all popular right now. One bitcoin is worth USD3.2K as of today, one-fifth of its high last year.

I call it a portfolio but in actual fact, I only have 3 different cryptos ie. Bitcoin, Ethereum and Dash. The total value of which comes up to USD288.00.

Same time last year, my portfolio was at USD628.59. Right now, I’ve got more currencies, but the total value has dropped by 55% in a year.  Go figure.

Of these, Bitcoin makes up 77%, Ethereum at 22% and Dash at 2%.

Genesis Mining

With the fall of Bitcoin’s prices, I’ve had a few mining contracts lapse as they were no longer profitable.

Return on Investment (ROI)

In total, I’ve put in only USD93.20 as my initial gross investment. My ROI is still intact, at USD288, ROI is still at 209%.

I’ll continue to mine cryptos with the contracts I still have with Genesis but will not add any more until prices stabilize. Still toying with the idea of purchasing some currencies – mainly Bitcoin and Ethereum at the prices now.

End.

It has been a roller-coaster ride in the crypto community.

With the markets heading for a volatile few months, I foresee spooked investors flocking to traditional safe havens such as gold and non-traditional ones like Bitcoin as they seek shelter from stock volatility.

As always, due diligence and caution.