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**

Play and Become A Better Investor!

As an investor, we often want to believe that we can pick stocks that can beat the market. So I made a game that allows us to test if we could actually pick stocks that can beat the market. The idea is simple: you will be given facts of an anonymous stock on a historical date. Based on the information, you will choose whether to invest or ignore that stock. Once you have made the decision, SGXcafe ...

Download the improved StocksCafe app now!

Over the last few weekends, I have been focusing on improving and adding features to the StocksCafe mobile app. While it is still far from perfection, I believe it should have many features that you would need on the go. Go to App Store (iOS) or Play Store (Android) today and download it if you have yet to. If you already have the app, do update it to v0.5.0 to access all the newly added features. ...

Annualized Dividends and P&L For Your Portfolio

Many features that you see in SGXcafe are requests made by users. I appreciate feedback and feature requests from users, and do my best to make it happen whenever possible. Therefore, if there is any feature that you wish to see in SGXcafe, feel free to let me know! This weekend, I spent some time working on adding new columns (e.g. annualized dividends % and annualized P&L %) to current portfolio ...

By evankoh posted on 15 Feb 2016 - 34,364 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

Play and Become A Better Investor!

As an investor, we often want to believe that we can pick stocks that can beat the market. So I made a game that allows us to test if we could actually pick stocks that can beat the market. The idea is simple: you will be given facts of an anonymous stock on a historical date. Based on the information, you will choose whether to invest or ignore that stock. Once you have made the decision, SGXcafe ...

Download the improved StocksCafe app now!

Over the last few weekends, I have been focusing on improving and adding features to the StocksCafe mobile app. While it is still far from perfection, I believe it should have many features that you would need on the go. Go to App Store (iOS) or Play Store (Android) today and download it if you have yet to. If you already have the app, do update it to v0.5.0 to access all the newly added features. ...

Annualized Dividends and P&L For Your Portfolio

Many features that you see in SGXcafe are requests made by users. I appreciate feedback and feature requests from users, and do my best to make it happen whenever possible. Therefore, if there is any feature that you wish to see in SGXcafe, feel free to let me know! This weekend, I spent some time working on adding new columns (e.g. annualized dividends % and annualized P&L %) to current portfolio ...

Can Shell shares return to 2,000p? Here’s what I think

*Posted 8 hours ago* - motleyfooluk

Blog Post lse:rdsb

Where Will Pfizer Be in 5 Years?

*Posted 8 hours ago* - motleyfool

Blog Post usx:pfe

3 Popular Robinhood Stocks Wall Street Hates

*Posted 8 hours ago* - motleyfool

Blog Post

7 Surprising Social Security Rules You Should Know About

*Posted 8 hours ago* - motleyfool

Blog Post

What’s the best way to invest £100k?

*Posted 9 hours ago* - motleyfooluk

Blog Post

See More Blog Posts

Blog Post lse:rdsb

Where Will Pfizer Be in 5 Years?

Blog Post usx:pfe

3 Popular Robinhood Stocks Wall Street Hates

Blog Post

7 Surprising Social Security Rules You Should Know About

Blog Post

What’s the best way to invest £100k?

Blog Post