Wednesday, August 1, 2018

The growth of Consolidated Edison and New York City population growth

I have a personal preference for stocks with recurring cash flows. Hence, my equity holdings comprise largely of REITs and consumer staples. Recently, I have been reading up on utility stocks, which is another sector known for stable, recurring cash flows.

In the US dividend aristocrat list, there is only one utility company on the list that has stood the test of time: Consolidated Edison


Consolidated Edison is a provider of electric, gas, and steam. According to their 2017 Annual Report, they are a holding company that owns:

  • Consolidated Edison Company of New York, Inc. (CECONY), which delivers electricity, natural gas and steam to customers in New York City and Westchester County;
  • Orange & Rockland Utilities, Inc. (O&R), which together with its subsidiary, Rockland Electric Company, delivers electricity and natural gas to customers primarily located in southeastern New York State and northern New Jersey (O&R, together with CECONY referred to as the Utilities);
  • Con Edison Clean Energy Businesses, Inc., which through its subsidiaries develops, owns and operates renewable and energy infrastructure projects and provides energy-related products and services to wholesale and retail customers (Con Edison Clean Energy Businesses, Inc., together with its subsidiaries referred to as the Clean Energy Businesses); and
  • Con Edison Transmission, Inc., which through its subsidiaries invests in electric and gas transmission projects (Con Edison Transmission, Inc., together with its subsidiaries referred to as Con Edison Transmission).
The same information could be visually represented as follows (taken from their Q1 2018 Earnings Presentation):


A huge chunk of the revenue and earnings for Consolidated Edison comes from its utility business. The screenshot below (taken from their 2017 Annual Report) shows that 94% of revenue and 76% of earnings is contributed by the utility business. Once we remove the revenue and earnings contribution from their O&R utility business, we can see that CECONY contributes a whooping 87% and 72% to revenue and earnings, respectively.


Hence, investors in Consolidated Edison have to be attentive to the changes in New York City and Westchester County, where CECONY operates.

In order for Consolidated Edison to continue growing its dividend (as of 2018, they have an annual dividend growth streak of 44 years!), prices for its services has to continue growing. However, there is a limit to raising utility prices. Another way that the company could grow is to see a growth in its consumer base in New York City and Westchester County.

How has the population growth in New York City been?

Let us turn to the New York City Department of City Planning website for further info. I would like to highlight a few salient points that I have gleaned from exploring their website.

First up is the Decennial Census data. A census is conducted once every ten years, with the two most recent ones done in 2000 and 2010. 2010 is a long time back, so care has to be taken when making inferences from the data.

NYC Decennial Census (2000 & 2010)

The data shows that population growth in New York City grew by 2.1% from 2000 to 2010. When population growth is segmented by race, another picture emerges. The Asian and Pacific Islander Nonhispanic group grew a whooping 31.7% while the other groups show small declines (the other exception is the Hispanic Origin group which grew by 8.1% over the same period).

New York City Race segment 2010

Asians are a very diverse category. In another report, a breakdown of the various Asian subgroups are provided. Of the subgroups, the Chinese is most heavily represented (6% of entire population) in 2010.

The above data is pretty dated. Let us turn to more recent data by reviewing the Current and Projected Populations page.

New York City Population (July 2017)

The Current and Projected Populations page estimates that the New York City population increased by 5.5% from April 2010 to July 2017. Compared to the 2000 to 2010 decade, this is an improvement. We also learn that population growth is fueled by a surplus of births over deaths due to improved life expectancy, which has been partially offset by net outflows from the city.

The details are unpacked in the report "Info Brief: Migration to and from NYC report" (dated August 2017). According to the report, population change is captured in two ways: (a) through migration, and (b) natural increase (births minus deaths).

NYC Migration Flow by Race

When migration flow is segmented by race, we see that the Asian, nonhispanic group has demonstrated consistent net inflows. In more recent times, net outflow of the White, nonhispanic group has transformed into net inflow.

NYC Migration Flow by Age

When the data is segmented by age, we learn that New York City consistently attracts people in their 20s across the years. In all other age groups, there is a net outflow, with the outflow slowing in recent years.

NYC Migration Flow by Worker Earnings

For people who have worked 50 weeks or more the preceding year, there has been a net inflow of migrants of all income categories in recent years.

The report concluded that "throughout the last 40 years, migrants have been disproportionately young adults, unmarried, and holding high-skilled jobs (not illustrated in this Brief), reflecting that these groups often have more flexibility and resources to move." They added that "age is one of the best predictors of migration. NYC consistently attracts large number of people in their 20s, and generally sees net migration losses of people in all other age groups. This is tied to a common pattern whereby young single people move to the City, and some residents move out after family formation."

There were also some statements that were made in reference to the GFC: "Following the 2009 recession, NYC has captured a large portion of the region's job growth, which is reflected in worker migration. For the first time since 1975, NYC now has net migration gains of workers in all earnings groups, particularly in the $25k to $49k range. Current data shows historically high net migration gains for workers making $75k and over. Higher earners are coming to the City in larger numbers than previously and are likelier to stay."

When you triangulate the data sources above, one could reasonably infer that the Chinese inflow has been contributing to the population growth in New York City. At a broad level, highly-mobile and highly-skilled workers have come to New York City to make their fortunes, have a better standard of living, etc. In my opinion, it is a tad bit optimistic to infer that these same qualified individuals might be settling down in New York City for the long term; we should also consider the alternative that they are free to reside wherever they want. As long as New York City remains a viable destination for people to make their fortunes, have a better standard of living, etc., the city could see further population growth. The trend documented above lends some support to this conclusion. If this pans out, we will see Consolidated Edison growing its user base, which would then be supportive of their dividend growth.

Friday, July 20, 2018

Q2 2018 Portfolio Update

Time flies. I didn't even realize that Q2 2018 is over; I must have been too engrossed with reading, prospecting stocks, and gaming lately. =P

Dividend Income


Q2 2018 SGD Dividend Income

Dividends received from my SGD-denominated portfolio in Q2 2018 fell, when compared to the same quarter last year. This could be attributed to weaker performance from my less-fundamentally strong yield stocks and plenty of divestments I have made in earlier periods.

In retrospect, it seemed like a good decision to take profits when people were starting to bid up the price of yield stocks, including the weaker ones. It made me realize that when a decision has to be made between two "fairly comparable" counters, I would be more inclined to take the lower yielding one. The higher yielding one, based on what I have experienced thus far, tends to disappoint. The slight increase in yield is ephemeral. The juice may not be worth the squeeze.

Q2 2018 USD Dividend Income

Q2 2018 dividend income from my USD-denominated portfolio broke the record for all-time high! In absolute dollars-terms, it is still pretty meh (look at the y-axis). The increase is mainly due to capital injections last year, which has finally taken effect now. As my positions are still minuscule, I can't really discern the "dividend growth" in my supposedly "dividend growth USD-denominated portfolio."

Transactions
In this quarter, I scaled in further into Thai Beverage when the price dropped to a level which I have previously determined that I will scale in to. This is part of my risk management strategy where I position size my counters in such a way that, even after scaling in, that particular counter would not take up an inordinate amount of weight in my overall net worth. As it is, said risk management strategy is still provisional and I am still tweaking it as I go along. Since then, the price of Thai Beverage has fallen even further, but it has yet to hit my second scale-in price, so I am not going to do anything about it. The same goes for Singtel which has seen its share price beaten down recently.

I did quite a bit of pruning on my equity positions this quarter. I divested my entire stakes in Starhill Global REIT, Neratel, and Kingsmen Creatives. Starhill Global REIT's performance has been average thus far and the funds could be better allocated elsewhere. After including dividends and taking into account transaction costs, I made a small loss in Starhill Global REIT.

After the sale of its payment solutions business to Ingenico Group, I actually had no reason to hold Neratel for its dividends anymore. Still, I engaged in mental gymnastics, telling myself that ooonnneeee day, I will go and read up and familiarize myself with its other businesses. Well, I don't think that day will come and, besides, my limited mental energy could be better spent on analyzing areas that I am more familiar with that has more ROI. It's not just capital allocation only; as a white-collar worker, what mental energy remains after office hours needs to be strongly guarded and judiciously allocated towards appropriate channels.

I digress. Anyway, I sold my Neratel at a loss. On the first day, only 100 shares were filled. On the second day, all except the remaining 100 shares were filled. On the third day, the remaining 100 shares were filled. For those who are into illiquid shares, stuff like this may happen, so be prepared.

I divested Kingsmen Creatives at a loss for the following reasons: (a) they have been under-performing, (2) I need to exert even more effort to read up on their businesses (when that effort could be better spent elsewhere), and (3) the funds could be better spent elsewhere.

In this quarter, I averaged up my position in Parkway Life REIT when its price corrected from its recent high. Post-purchase, my position size in Parkway Life REIT is still kept at manageable levels.

Let me digress once more. There is this tendency to view healthcare-related counters as defensive. In our local context, this adage seems to hold true for counters such as Parkway Life REIT and First REIT. However, my experience with US healthcare REITs are a different story altogether. A couple of months back, the US healthcare REITs sector was hit by a triple whammy of rising interest rates, change in healthcare policies regarding long-term care payment, and the flu epidemic. US healthcare REITs that predominantly served the long-term care population were hit the hardest as fewer people wanted to stay in nursing homes and people who were staying in nursing homes wanted to get out owing to the increased probability of flu spreading from one patient to the next in close proximity.

SG-listed healthcare REITs are a bit........too peaceful? I admit that they are doing good, but my risk management system demands that I do not fall in love in them. Curve balls do come; it is not a matter of if but of when. Hence, they should not be granted exceptions in matters pertaining to position sizing.

I initiated a new position in Mapletree Commercial Trust when the price corrected in this quarter. It is a small position which I intend to build upon further during the next rights issue.

Finally, I added to gold and silver multiple times during this quarter. I wasted money on a graded gold coin I have been eyeing for a long time (there goes a chunk of my bonus.......) and a 2nd hand antique silver bar that was up for sale a couple of days ago.

Portfolio Overview and Capital Allocation thoughts
Both my SGD-denominated and my USD-denominated are in the green with small pockets of red from counters like Singtel, Thai Beverage, and QAF which has gone to the gutters.

My equity allocation still consists predominantly of REITs, reflecting my preference for an income-oriented strategy. It is complemented with property developers, consumer staples and healthcare stocks and a catch-all "others" category. The following lists are not arranged in position size.

REITs/Business Trusts:
AIMSAMP REIT, Frasers Centrepoint Trust, First REIT, Lippo Malls, Accordia Golf Trust, Parkway Life REIT, SPH REIT, Mapletree Industrial Trust, Mapletree Commercial Trust, Capitaland Mall Trust, Frasers Commercial Trust, Welltower REIT

Property Developers:
Hongkong Land, Frasers Property

Consumer Staples:
Dairy Farm, Sheng Siong, Thai Beverage, Yeo Hiap Seng, QAF, Kimberly Clark, JM Smucker, Hormel Foods, General Mills

Healthcare:
Raffles Medical Group, Abbott Laboratories, ISEC

Others:
Japan Foods Holding, ST Engineering, SGX, Singtel, SATS

I have the intention of transforming my equity allocation into a 5-sector portfolio consisting of REITs, consumer staples, healthcare, utilities, and a catch-all others category. As the US consumer staples and utilities sector rebounded lately, I've totally missed out on the action. If you are wondering, the valuation was just merely "fair"; it was not a screaming buy or anything like that.

I foresee the names in the above lists to shrink even further. Some of them have been found wanting for having a poor record.

There are some questionable names in the above lists as well. As I've managed to catch them at their lows, collect multiple rounds of dividends, and take partial profits when they went up, I am quite comfortable holding on to them still, even though their fundamentals are.......questionable. In the event of a rights issue for these questionable cases, I've already planned to either sell off the rights or to subscribe to my allotted rights. For such cases, excess rights are not for me!

In the interim, I am prospecting stocks. From a financials perspective, my Singapore and US watch list has, more or less, been firmed up. The next step is to dig deeper into their annual reports and familiarize myself with their business prospects.

Net worth breakdown
Compared to the previous quarter, there has been some changes to my net worth breakdown. Equity allocation decreased from ~39% to ~34% while cash increased from ~36% to ~40%. Precious metals increased slightly from ~24% to ~25%.

Net Worth Breakdown

As per before, "the pie chart depicts the breakdown in my net worth across the various asset classes in percentage (pie chart neither includes my CPF nor my emergency fund). To be conservative, I computed my precious metals allocation at spot price even though I am holding everything in physicals."

CAPEX
After falling sick quite often and experiencing some form of burnt-out, I dropped out of my 3rd specialist diploma halfway (as detailed in my Q1 2018 post). Since then, I have been enjoying my free time first by casual reading, followed by prospecting stocks, and then by gaming.

Now that I am much more refreshed, it is time to engage in some personal CAPEX again. I have identified University of London's Graduate Diploma in Data Science (by distance learning) as my next education target and will be applying for it soon. The fees are quite economical (SGD $3800 for the entire programme) and the programme is rigorous, so that's good.

I signed up as a NTUC member last year in order to make use of the Union Training Assistance Programme (UTAP). Members enjoy course fee support for up to $250 each year when you sign up for courses supported under UTAP. Well, half of 2018 has gone by and I've yet to make use of UTAP. I've identified a few courses and will be applying and going for them shortly.

There will be some law certification programme that will be held at my workplace. I know it has no link with my current job scope but I went ahead anyway asking my bosses for their blessings. I wanted to acquire practical skills that could help me to be a better investor, but it was not meant to be in this calendar year. After all, they will be sending me to a tech course before the close of this calendar year.

Health
The above is not possible without sustained good health. The results from my annual health checkup concluded that my health is okay, with needed improvements in my total cholesterol levels and LDL cholesterol ("bad cholesterol") levels. I realized that I have been consuming more meat in my diet to cope with stress. I will be more conscious of my reaction to stressors from now on and to incorporate more exercise to my life.

Emergency Fund
I intend to add more to our shared emergency fund. In fact, I topped up our emergency fund with a portion of my bonus. I find that increasing the absolute value of our emergency fund gives me a greater peace of mind, especially in uncertain economic times. Unfortunately, my desktop computer of 9 years died last weekend and my mum wanted to use our emergency fund to fund the new purchase (I know buying a new computer does not constitute an emergency! lol)

Gaming
Some people have been curious with what games have I been playing recently. I normally play games by independent developers (e.g. "indie games") as they have more varied premises, with varied meaning downright weird or interesting depending on how you look at it.

As my words will not do them any justice, I shall let the following youtube videos to do the talking:

Enter the Gungeon


Thumper


Enough with gaming for now. Time to ramp-up my personal development.

RAMP-UP! LIKE A RAMP-UP WAREHOUSE!

(Lol, I created my own tagline liao. Gotten the inspiration from Dividend Warrior's "Power of CD-XD" and Dividend Knight's "Wun wun jiak bee hoon" XD)

Tuesday, July 17, 2018

Free ebooks from SkillsFuture Festival 2018

Don't say Unintelligent Nerd bo jio when there is a good lobang.


The SkillsFuture Festival 2018 is running from 30 June to 4 August 2018. Concurrently, there is a "virtual festival" that is happening entirely online here. One of the offerings include a link to BookBoon, a publisher that is currently offering its e-books for free during this period.

The genres range from Accounting & Finance, Entrepreneurship, Marketing & Sales to Career Management, and Personal Development.

Have fun!

Cheers
UN

(P.S. I will do a blog post soon. Been too engrossed with reading, prospecting stocks, and gaming lately. When I wanted to blog, my computer died on me. Now that that's settled, I can start blogging soon.)

Wednesday, June 13, 2018

Investment/Econs/Finance/Markets Book Recommendations by Five Books

Some time back, I came across Five Books, a website that invites authors, academics and public figures from various fields for an interview, where they get asked what five books would they recommend to readers who are interested in their fields.

There is a wide range of books in almost every genre, but as investment blog readers, I guess my readers would be curious as to who have they invited, what transpired in the interviews, and what books were recommended:

Interviews and book recommendations on the topic of "How to Invest"

Interviews and book recommendations on the topic of "Economics"

Interviews and book recommendations on the topic of "Behavioural Economics"

Interviews and book recommendations on the topic of "Finance & Markets"

Interviews and book recommendations on the topic of "Risk"

Interviews and book recommendations on the topic of "Financial Crisis"

Enjoy!

Saturday, June 2, 2018

Taking a closer look at Treasury Bills

Plenty of bloggers have turned to the Singapore Savings Bonds (SSBs) as interest rates are on the rise.

Similarly, I have thought of parking my cash in SSBs as well. However, there have been some hesitation on my part. First, a couple of facts about my financial position. My cash position, on absolute terms, is not huge (~$40k). I want a place to park some (not all!) of my cash to earn an interest rate that is higher than the prevailing interest rates offered by your typical savings account. I want a financial product that has a short tenure and can be readily converted back into cash with minimal delay and, if possible, with no penalty inflicted on me.

Some of the current fixed deposit promotions seem decent. However, I do not have multiples of $20k that I could use to create a fixed deposit "ladder." While some offer a short tenure (3 months), I do not fancy the "50% cut" of my cash position. When the market did a faux-turn in Feb this year, I had the experience of terminating my FD early and losing the interest due to my low cash position. I documented my experience here and I do not want to repeat it again.

SSBs are another alternative. What really makes me hesitate here is the application fee and the early redemption fee. Considering that I would hypothetically allocate only a small portion of my cash to it, this move would not make any sense as the application fee and early redemption fee will wipe out the returns. Yes, at this juncture in my life, I neither foresee myself holding the SSBs for the entirety of the 10 years nor put enough cash in it such that the application fee and early redemption fee is a non-issue.

A third option which I am still considering is Treasury Bills (T-Bills). I obtained the data from the Singapore Government Securities website and plotted the following 1-year T-Bill yield chart. Similar to the SSBs, the yield for the 1-year T-Bills have been increasing over time.

Singapore T-Bills Yield across time

Unfortunately (for me), the 3-month and 6-month T-Bills have already been discontinued. What remains is the 1-year T-Bills (which is reflected in the chart above).

Why did I consider T-Bills?

It works for people like me who has limited cash and wants to allocate an even smaller portion of that limited cash to higher-yielding instruments. According to the FAQs for individual investors, the "minimum denomination to purchase SGS Bonds/T-bills is S$1000, and you can invest in multiples of S$1000."

Singapore T-Bills Investment Amount

Individuals are able to purchase T-bills at primary auctions or in the secondary market. For purchases made at primary auctions, the details could be found in the screenshot below, which I took from their FAQs for individual investors:

Purchase of Singapore T-Bills

As my broker is DBS, I referred to the link provided. There are no charges that are imposed for applications made via DBS iBanking for SGS (see screenshot below).

Singapore Government Securities no service charge

In addition, Singapore Government Securities (SGS) such as Bonds and T-Bills are custodised with the Central Depository (CDP). The FAQ at SGS's website states that "with effect from 1 April 2013, CDP has removed the administrative fees of 0.08% (8 basis points) of the face value of the SGS per annum."

Singapore Government Securities CDP admin fees removed

Based on the above pieces of information, we know that there are no administrative fees (from CDP's side) and application fees (for those who are using DBS, at least. I did not check for the other two banks) for those that take part in the primary auction.

It is quite rare to hear from bloggers blogging about T-Bills. The only blog post which I have come across is a post by Cory. Interested readers can refer to it.

As for purchasing SGS such as T-Bills from the secondary market, I shall refrain from commenting on it. Partly because I have no experience with it and partly because I suspect that there will be trading fees involved that will eat up the returns.

As it is, if I were to commit a small sum to T-Bills, I would do it via the primary auction route instead of the secondary market route. Dates for primary auctions could be found in SGS's website. As shown in the screenshot below, select "Issuance Calendar", followed by "T-Bills" (if you are interested in T-Bills).

Singapore Government Securities Issuance Calendar

Selecting T-Bills will take you to a separate page which details the T-Bills primary auctions which was/will be conducted in year 2018 (see screenshot below).

Singapore Government Securities T-Bills Auction Dates in 2018

Do newly issued T-Bills affect the yields of existing T-Bills that are already on the market? I was curious to find the answer. The following 2 screenshots show the auction results for the 26 January 2018 and 25 April 2018 auctions, respectively.

SGS 26 January 2018 T-Bills Auction Results

SGS 25 April 2018 T-Bills Auction Results

If you look at the T-Bill yield chart at the very top of this blog post, the T-Bill yield at 31 January 2018 and 30 April 2018 are 1.38% and 1.74%, respectively.

In theory, the market will readjust itself to the yield of the newly issued T-Bills. We see that this is the case when the bond market closed on 31 January 2018; the newly issued T-Bills yielded 1.38% and the historical data showed the same figure. 

However, reality did not corroborate theory on 30 April 2018. The newly issued T-Bill yielded 1.76% while the historical data showed 1.74%.

Market forces push SGS prices and yields up or down. Accordingly, it could be inferred that investment capital is not guaranteed (but still relatively safe as it is the Singapore Government we are talking about here), unless one holds all the way to maturity. For investors who require a capital guaranteed instrument, they could consider sticking with SSBs.

As for myself, I'm still contemplating whether are T-Bills a suitable financial instrument for me to use. If I do use them, I have to be certain that I will be holding them for the full duration, since a rising interest rate environment will see money flow towards newer T-Bill issuances. For now, I'll wait and see how the July 2018 issuance turns out!