stock code: MWC
Manila Water Company, Inc. (MWC) is the sole provider of water and wastewater services to over six million people in the East Zone of Metro Manila. Incorporated on January 6, 1997, Manila Water became a publicly listed company on March 18, 2005. As per data collected from Col financial, the company has recorded dividend payments since 2010 which is distributed twice a year. In this blog, we will be doing our dividend review of Manila Water in the last decade and evaluate its trend for 2020.
MWC is one of the hottest stocks being traded in the PSE right now after its massive drop from 20 to 5 pesos per share. The price bounced back to 10 pesos which gave a lot of opportunities to traders and investors alike. With a recent news disclosure, Razon’s company acquires 820 million MWC common shares at P13 per share, which drove the stock price up near this mark and closing today at 13.78 pesos.
To start our 2020 dividend review of manila water, as seen on the images below, the stock price, dividend rate, and dividend yield are all increasing since 2010. This is quite expected from a company who is dealing with the most important basic necessity know to man in one of the most crowded regions of the Philippines. However, 2019 ended with a big red candle which erased all gains in the last decade. With this massive price drop, the potential dividend yield is at its highest. Check out our 2019 Top Dividend Stocks when the market closed in 2019, MWC’s dividend yield reached 8.79%.
Another good thing about MWC’s dividend history is that the payout ratios are low at around 33%. This is good considering that their dividends and earnings per share are increasing every year. So again, from a dividend investor’s standpoint, everything seems to be fine. Tap on the back for MWC. The flaws were revealed only when the news about the onerous provisions in their contract were scrutinized by the government.
This table is until 2018 only since we are still waiting for their annual report. Once they release those reports, the next disclosure to wait for is their dividend declaration. Only then can we really see if their dividend trend will continue to rise or fall. If they maintaint it, then the projected dividend yield for 2020 is possible. If an updated version of once disclosures are out please leave a comment below to remind me!
In this section of our 2020 dividend review of Manila water, were going to we are going to look at its historical performance. If it wasn’t for the massive price drop last December, this would have been one of the ideal companies to consider for long term dividend investment. Hindsight is indeed 20/20. Who would have known that the gains accumulated over the last 10 years would be erased in just a couple of weeks? This is why diversification and risk management are important not just for traders but also for investors (see chart below).
Stocks are exposed to a lot of risks. Issues like what MWC is going through right now is one of them. It only takes one big expose to take down all of its gains.
The next table below is the source of the line chart above. If you’re not fond of numbers then you can skip this part. Even I am not comfortable sharing this since I think its too overwhelming. However, for the meticulous ones and those who want to know what happens when you invest a lump sum amount, check out the table below.
In this table, I simulated a lump-sum investment of 100k pesos starting from 2010 to present. Prices are based on ex-dividend open price since that will be when the stock stops trading with dividends. There are three points that I would like to point out here. First is the comparison between capital gains without dividends in the middle column and capital gains with dividends in the last column. The second point is the difference between the yellow columns which represents the number of shares between a buy and hold strategy and dividend reinvestment strategy. The last thing I want to point out is the result of not reinvesting your dividends (highlighted in green).
3 points to remember
Point number 1.
Obviously, there is a huge difference between a dividend stock and a non-dividend paying stock. You’ll be able to capture both ways of earning from stocks (capital appreciation and dividends) if you are investing in them. This is pretty self-explanatory based on the comparison above.
Point number 2.
Just remember that dividends are paid based on the number of shares you have. They won’t increase if you are not reinvesting your dividend income or if you’re not buying more shares of a company. Why is this important? If you plan to include dividend stocks in your retirement portfolio for passive income, you must be aware that you’re going to get a fixed amount of cash based on how many shares you have.
Example, Company A is priced at 1 peso per share and gives 10 cents of annual dividends. This means you’re getting 10% return per annum. If you want to earn 100k PA passively from this stock, then you would need 1 million pesos as capital. Dividend reinvesting comes into picture when you’re just starting out in your journey to retirement. You can achieve your desired capital faster if you are investing in dividend-paying growth stocks. Once you have your desired capital, you can stop reinvesting and start using your profits for your maintenance medications.
Point number 3.
As seen on the table above, in a buy and hold strategy, you are not reinvesting your dividend income. Hence, you have a choice of just saving it in your broker account or investing it in other securities. This is good if the market sentiment suddenly changes or if a stock is hit by something bad just like what happened to MWC.
The total amount of 122,011 pesos, highlighted in green, is the sum of the total dividend income and capital gain/loss. It is noticeably higher than the total amount in dividend reinvestment strategy which is roughly about 105k.
That wraps up our 2020 Dividend Review of Manila Water. Please leave your comments, questions, or whatever reactions you may have in the comments section below. Thanks guys!
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Whether you’re a chartist or a fundamentalist, dividends should play an essential part of your investment strategy. There’s only two ways to earn from the stock market anyway, why not earn from both.– Chilliinvest