Saturday, 20 June 2020

Some thoughts on Dividend Withholding Taxes (DWT) for Singaporeans

For non-US investors, there is a 30% Dividend Withholding Tax (DWT) on dividends payouts from US-based companies. For Singaporeans, individuals do not get taxed on their dividends received but are subject to a 30% dividend withholding tax for companies incorporated in USA.

Another thing to note is that Singaporeans do not have capital gain tax. One way to attempt to avoid DWT is to sell before the ex-dividend date and buy it back. Usually, we expect a stock to fall by its dividend on the ex-dividend date.

Example
A $100 stock with a $3 dividend is expected to be $97 on the ex-dividend date.
Since we have a 30% DWT, we only receive $2.10 instead of $3 per share. If we sell the stock 1 day before the ex-dividend date and purchase it back on the ex-dividend date, we have a 30% buffer. If you purchase the stock from $97 to $97.90, you effectively 'avoided' the DWT (before fees) since we would not have received 30% of the dividends ($0.90).

As long as a stock drops by more than 70% of its dividend on the ex-dividend, there is a chance that we can buy back and avoid the DWT.

IBKR has a Good After Time (GAT) and Market-on-Close (MOC) which helps to 'automate' this process.

This does not always work since stocks don't always drop by the exact dividend amount and you may end up losing your 'free' dividend. You also need to consider brokerage fees if you want to try this. Another thing to note is volatility, if volatility high, you may end up selling your stock much lower or buying back higher, though this may also work the other way. Finally, selling and buying back is effectively reinvesting our dividends into the stock on the same date which most people do not do.

Example using SPY using closing prices
Buy & Hold does not take dividend reinvestment into account.

If you compare CSPX (Irish domiciled S&P500 ETF, 15% DWT), selling and buying back gives you at ~8% higher return as we are able to 'avoid' the DWT completely. This is despite having a commission of $12 per trade. If you have access to low-cost brokers, this strategy might be worth considering.

For individual stocks, they should behave more 'normally' where they drop by the dividend amount unless volatility is high or there is news about the stock.

Sunday, 14 June 2020

Tsakos Energy Navigation (TNP) Preferred Stock

Most Oil Tanker are experiencing record earnings and rates which are double or more of previous years due to the oil demand shock. While the price of oil has rebounded, rates remain fairly strong at double of their usual rates of ~20k in 2019. Unfortunately, the market does not appreciate their results and have been constantly downgrading and showing no love to their share price. Instead, you have companies reporting horrible results going up and some even going bankrupt with their share prices surge upwards.

I previously held DHT and FRO but their share prices went nowhere and managed to exit with covered calls allowing me to make a small profit. From the time I exited my positions, the prices have went up slightly and are back down to a lower price again. Oil Tankers are definitely cyclical plays, while you have FRO and DHT paying over 20% a year in dividends, its not something that should be expected for the long-term.

Rather than buying tanker stocks and hoping that their prices rally, their preferred stock look a lot more attractive. Instead of hoping these companies do well (which they are), buying their preferred stock is hoping that they survive (which they are). 
https://www.tenn.gr/wp-content/uploads/2020/06/TNP_Q1_2020.pdf
 Tsakos Energy Navigation (TNP) has preferred shares ranging from 8.875% to 9.5% on par. Some of these preferred shares are trading below par which means that their dividends are even higher.
https://www.tenn.gr/shareholder-information/
https://sec.report/Document/0001193125-20-107119/
https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Tax/dttl-tax-greecehighlights-2019.pdf?nc=1
Incorporated in Greece, there is a dividend withholding tax of 5% on dividends and 15% on interest. Preferred Stocks payouts are usually classified as dividends so it should be 5% but I am unable to confirm. Even 85% of 8.875% is is 7.54% which is rather attractive.



Q1 2020 Results
  • Net Income increased from $21,221 to $11,229 (thousands) in Q1 2020 as compared to Q1 2019.
  • EPS increased to 0.12 from 0.1.
  • Operating cash flow increased in to $57,453 to $39,238.
  • Daily average TCE per vessel reached $26,629 
Because of the diversified fleet fleet and the number of fixed time charters, their results are not as great as EURN, FRO or DHT. Balance Sheet wise, they are still rather leveraged, debt has decreased but other liabilities has increased.

Management has also stated that they would like to redeem their Series C Preferred Shares.



Preferred Stock

TNP.C - 8.875%
TNP.D - 8.75%
TNP.E - floating rate equal to three-month LIBOR plus a spread of 6.881% per annum
TNP.F - floating rate equal to three-month LIBOR plus a spread of 6.54% per annum

 All the Preferred Stock have a liquidation value of $25.00 should management redeem them. The 3-month LIBOR is at 0.31% now, which makes series E and F unattractive, given the low interest rate environment and that the Bank of England may decide to venture into negative interest rates.
https://www.sec.gov/Archives/edgar/data/1166663/000119312520107119/d913676d20f.htm
In 2019, their average interest rate on loans was 4.41% and the borrowing rate for their right-of-use and operating leases was 5.45%. The interest loans should be lower given the interest cuts which is most likely half of what they are paying for the Series C & D.
I'm only interested in the Series C & D since they are more likely to get redeemed. With 2 million outstanding shares, they will need 50 million to redeem the Series C. They have more than enough cash to refinance that and can probably get more loans at a much lower rate now.
While the C stock is trading above liquidation value, there may be more one or two more payouts before management. The prospectus states that preferred shareholders will be entitled to any unpaid dividends whether declared or not. If it happens before July, you risk not getting the dividend and redeemed for $25.

Since Series D is trading below liquidation value at 21.68, that's a 15% upside if they decide to redeem their stock. Its less likely since they need 85.6 million to redeem it on top of the 50 million for the Series C. However, if tanker rates continue to maintain at this level, the company will continue to do well and are unlikely to face bankruptcy. By buying the preferred stock, we no longer need tanker rates to remain high to push the share price up but just for the survival of the company. 0.021875 cents per year is currently a 10% yield (before DWT).

Conditions for Redemption
The problem comes with the second paragraph for the terms of redemption. The company only issue new shares to redeem or repurchase the preferred stocks (unlikely, why would people subscribe at lower rates when they can just buy the Series C?), dilute shareholders to redeem (not a nice thing to do to shareholders) or the share premium which doesn't exist for the Series D since it trades below par.

What else can the company do? Maybe take on debt to pay dividends (normally bad) but use the cash generated from the next quarter to redeem or repurchase them off the market and eventually redeem the Series C shares.
Tankers are cyclical in nature and their profitable and survival depends on the rates and supply of tankers. 2018 and 2019 were bad years for them but TNP has continued paying preferred stock dividends in those years.

Overall, this was not as great of an idea as I thought it was. A 10% dividend annually on the preferred stock seems like a great idea with just a 5% dividend withholding tax rate but it may take some time before it gets redeemed. The Series C might be worth considering if it drops below $25 and the Series D to hold for a longer-term.

Tuesday, 2 June 2020

Revision of Standard Charterd JumpStart Interest Rates from 1 July 2020 - 2% to 1%


https://www.sc.com/sg/important-information/interestrateupdate/
With effect from 1 July 2020, Standard Chartered's JumpStart account will reduce their interest rate to 1% a month for first $20,000. This is the same as CIMB FastSaver. If you have more than $20,000 CIMB FastSaver is better since the amounts above $20,000 will only get 0.1%.

If you are unable to credit your salary, the following 'no frills' options remain.
Personally, after maxing out SingLife, the remaining of my cash will go to DBS Multiplier with the minimum requirements (salary credit + credit card spend) to get the 1.40%. If I purchase any stocks with DBS Vickers Cash Upfront, I can bring that up to 1.8%.

There's also MayBank iSAVvy which gives 1.3% for the fresh funds for the months of May 2020 to June 2020. If the next rate is above 1%, its worth considering. However, you need to maintain a $10,000 average daily balance at least and the new rates have yet to be announced.

I expect SingLife rates to come down soon since they probably can't operate in this low interest rate environment. If it drops lower than Etiqa's Elastiq, I will probably switch over to that, at least with the minimum amount.

For now:
  1. SingLife
  2. DBS Multiplier
  3. MayBank iSAVvy
  4. Standard Chartered JumpStart / CIMB FastSaver

Saturday, 30 May 2020

Sold Frasers Centrepoint Trust (J69U), bought UOB (U11)

Very strange end of day movement with FCT spiking at during TAC and UOB 'crashing' at close.
https://fct.frasersproperty.com/newsroom/20200423_073633_J69U_U8ZS0QDNEFGPSGRK.3.pdf
While I like FCT for their heartland malls, Changi City Point, Anchorpoint and Bedok Point do not have very good locations in my opinion. Changi City Point is mostly fueled by the office crowd which has probably dwindled due to COVID-19. Residents in the area will either go to Bedok, East Point, Tampines or even Jewel if they want to go to a mall. Its not really a heartland mall.
https://www.frasersproperty.com/reits/fct/-/media/feature/project/frasers_fct/reports-and-presentations/ar2019.pdf

Bedok Point suffers from being located next to Bedok Mall which is integrated to both the MRT and Interchange. It contributes a relative small amount of their total portfolio but has heavy dependency on F&B.

For Anchor Point, the location isn't really 'heartland' and not very conveniently located to MRT stations. In my opinion, MRTs are important since most people will alight at the station after work, do some shopping then take a bus or walk home. This mall doesn't really support that thesis. I like the PGIM properties though.

Finally, even with 'Phase 2' of the circuit breaker allowing more people. Malls will probably not retain their former glory with social distancing measures in place. Most F&B will not be able to operate at full capacity and food delivery eats heavily into their margins. Furthermore, with the government stepping in to help with tenant rebates, I think this recovery is too soon and people have too much expectations. While food delivery apps may help F&B tenants, the revenue they take due to middle man fees may do more harm than good.

For banks, I like UOB over DBS and OCBC because of the more conservative dividend payout. DBS and OCBC 'locked' themselves into a dividend payment policy which may have adverse market reaction if they need to reduce it. UOB has a special dividend instead which means they just have to maintain the 'non-special dividend' and the markets will likely react less adversely in that case.

I also like UOB for their digital banking initiatives in Thailand and Indonesia and having the least exposure to China and Hong Kong. Furthermore, DBS being Temasek-owned may be forced into 'National Service' in times like these.

Monday, 25 May 2020

Cheapest Brokers to use and CDP or Custodian?

When choosing a broker one important thing to check is if there are any 'hidden' fees. Some of these come in the form of custodian fee, dividend handling fee, foreign stock handling fee, corporate action handling fee, and even forex premium if you consider that as fee.
Created with http://thinkcomposer.com/

Most of these brokers do not have fees, at least for SGX. Outside of DBS Vickers Cash Upfront, any other broker would work fine if you want to have your holdings in your CDP account since the minimum commission is usually $25. If you have a broker's contact, you may even be able to get $10 minimum commission for a CDP account that does not require cash. Even with a custodian account, you may want CDP access in order to apply for IPOs.

Foreign stocks are not held in your CDP account. If you use DBS Vickers to purchase US stocks, they are held under DBS Vickers' custodian account.

Depending on which markets you need to access, you may need a different broker. Interactive Brokers has some of the most comprehensive market access. CapTrader and and Zacks Trade are White Labels under Interactive Brokers. Singaporeans are not able to purchase Singapore equities or ETFs under Interactive Brokers.
Brokers comparison, high resolution image: https://i.ibb.co/xjKH28k/Broker-Comparison.png
I have not explored other markets yet because of the hassle of having multiple currencies. Interactive Brokers would be the most convenient if you have a large enough account or frequent transactions. Personally, these are what I use.
Additional fees to note:
For international inward Telegraphic Transfers, your bank account may charge you a fee
  • FSMOne
    • US Stocks:
      • Dividend Handling Fee
      • Corporate Action Fee
  • Tiger Brokers
    • Withdrawal Fee
    • Currency Conversion Fee (2 USD)
    • Does not allow SGD to HKD currency conversion for some reason
  • Interactive Brokers
    • USD 10 Account Maintenance Fee, waived if your account size is at least USD $100,000. Account Maintenance Fee is deducted from any commission or fees incurred (Currency Conversion, Commission). If you spend USD 4 on commission, you will be charged USD 6 for that month (USD 10 - USD 4).
    • Currency Conversion Fee (2 USD)
    • Withdrawal Fee (1 free per month)
  • Tastyworks
    • Withdrawal Fee (USD 45)
  • CapTrader & Zacks Trade
    • Currency Conversion Fee (2 USD)
    • Withdrawal Fee (1 free per month)



CDP vs Custodian 


You probably do a search on Google for a more in-depth explanation.
  • CDP is also a custodian, it is a subsidiary under SGX.
  • Shares held in brokers that are linked to your CPD (eg DBS Vickers) for overseas stocks are held in their custody (eg US stocks bought with DBS Vickers), they are not held in your CDP account.
My Reasons for CDP
  • Corporate Action 
    • If there are rights issue, scrip, currency election, having the shares in  your CDP let you be in charge rather than at the mercy of your custodian account. This may backfire if your forms get lost in the mail or you do not have time to attend to them.
       
    • For Rights Issue, I will prefer to have my shares in CDP when applying for excess. I think that you can get more excess by having it under your CDP because of the allocation. When rights issue happens, the shares/units are allocated to you by the company based on your holdings. Custodians may have a lot of shares (eg 5,000,000) among all the shareholders and have to divide them differently. I have not proven this theory yet but I think this is what happens.
  • Dividends can be credited your savings account
    •  Convenient, most custodian accounts do not provide interest on your cash or at a lower rate than your bank account.



Which broker do you use and how has your experience with them been?

Saturday, 23 May 2020

Indiscriminate Selling

A rising tide lifts all boats
Only when the tide goes out do you discover who's been swimming naked

During March, stocks that were not affected by COVID-19 were also indiscriminately sold down. While market sentiment (and algos) may have been bad, certain stocks were less, or not affected at all, due to their nature of business.

Hong Kong stocks have been hit rather badly due to China's new law. Similar to the March selldown, we have stocks that were hit despite having little or no exposure to Hong Kong. Chinese stocks are listed on  HKEX but do not have any business in Hong Kong or it accounts for very little of their revenue.

While I've had some interest in Hong Kong stocks, I have not made any purchases because I really dislike their minimum lot sizes. To buy Ping An, you need to purchase a minimum of 500 shares, that makes it about HKD 37,950 or SGD $6,9750. This is even worse than SGX's minimum 100 shares for some stocks.

Chinese stocks that do not have a presence in Hong Kong or Macau since they only serve their domestic market and are not affected by this law at all. Similarly, there are stocks listed in Hong Kong that have little presence in Hong Kong as well.



CK Infrastructure Holding (CKI) (1038.HK)

CKI is a utilities and infrastructure trust that derives majority of its income from outside of Hong Kong.
https://www.cki.com.hk/english/investor/financial_summary/index.htm
Its also a great dividend stock with both growth and high yield. At the last closing price, the dividend yield is 6.13%.
https://www.cki.com.hk/english/PDF_file/ir_presentation/20200318_1.pdf, page 6
In 2019, ~4.82% of their income came from China and Hong Kong. Without China, the income contribution is even less. While geographic risk is minimal, infrastructure and utilities are subject to strict regulations and we don't know what may happen to Hong Kong companies if the bill is passed and if there is any new restricts imposed by these countries. I would be interested in buying this if it reaches closer to the March lows.

The minimum lot size is 500 so it will cost  HKD 20,050 or about SGD 3683.