Tuesday, February 21, 2017

Starhub - Dividend Investing Gone Wrong

There are many developments in the Telecommunication industry with the entry of a fourth operator soon in Singapore. As we all know, Singapore has 3 Telcos here namely Singtel, Starhub and M1. The 4th Telco which is coming will be TPG telecom. Let's take a look at Starhub in this post and see what went wrong with the share price falling from a high of $4+ to $2.80 now.

Starhub was once a favourite with its defensive nature and good quarterly dividends. If we had invested in Starhub back in 2005 and hold it all the way to 2016, we would be getting a dividend yield of 15.4% (based on a price of $1.30) and also the value of the stock price has increased by 3 times. $5000 invested in 2005 would become about $15000 in 2016 and we would still be getting about $800 dividends annually from the initial $5000 invested.

However, those who invested at a high of $4 were in for a surprise when it tumbled all the way to $2.80 now.

Here's a look at the chart of Starhub:


As we can see, the share price has dropped over the years, most drastically when the 4th telco was announced by the government. M1 share price has also dropped but Singtel is still strong. I've not invested in Starhub or M1 but have shares in Singtel instead. Working in the telecommunication industry previously, I do know that it is a very competitive market with little growth if the companies are only in the traditional telco business in Singapore. Singtel on the other hand has expanded overseas with most of its profits from its associates and subsidiaries in other countries and also went into other businesses such as digital marketing and cyber security.

Starhub is a favourite among many shareholders because of its quarterly dividends of 5 cents which they give out for many years since 2009. A 5 cents dividend per quarter translates to a yield of 7.14% at current price of $2.80. However, in its latest FY 2016 results, Starhub announced it will lower its quarterly dividends to 4 cents for FY 2017. After 7 years, they decided to lower its dividends. Why is this so?

Let's dive in deeper into the business of Starhub to understand why its share price has dropped so much and moving forward how it will perform.

Mobile is the largest of its business

Revenue from its mobile business is at 50.7% of its total revenue. Pay TV is at 15.8%. Mobile revenue came in at $1.21 Billion for the whole of FY 2016 with $2.3 Million subscribers. This means averagely, each subscriber pays $43.87 a month to Starhub for their mobile plan subscription. The fourth telco, TPG telecom, will only come in about 2 years later where we will see the real impact. If for example 500K of Starhub subscribers switch over to TPG telecom, we will see about $263 Million revenue gone. This is 9.8% of its total revenue now.

Investing at the wrong time?

Investing is all about the business and how it will grow moving forward. In the case of Starhub, it is obvious there will be impact to its business thus the reaction of the share price. If we had bought at $4+ when the PE ratio was about 18x-20x, we would have thought it was only slightly expensive. Even at $4, the dividend yield was 5% then.

However, as business sentiments changes with the introduction of new competition, the valuation changes as well. For this case, it is quite easy to see the impact as its reported all over the news for the new 4th telco. For other industries, it may not be so straight forward. Any companies' revenue and profit can be eroded anytime. As such, it is important that we always have a forward looking view for our investments and monitor the financial performance of a company. Remember the valuations will change according to the business environment. Stock price also tend to be forward looking where it will drop before the actual profits gets affected.


Is it a good buy now?

The fourth telco will certainly make the telecommunication industry more competitive and take away market share from the existing incumbents. I believe the market is trying to make sense of what is going to happen and is pricing in the impact now. The current PE ratio of Starhub is 14x. If we see the Earnings per share (EPS) drop by 10%, the PE ratio will be at about 15.7x. This looks like its trading at fair value with a slight discount at current price, taking into consideration the impact in the future.

The dividend yield, if the company maintains its dividend of 4 cents every quarter, will be at 5.7%. This is quite fair but the question is whether the company will continue paying this dividend or drop it even further? The real impact has not come in yet so everything is just speculation now. It may turn out that the 4th telco impact may be just 5% instead of 10%. If that's the case, PE will be at 14.9x which is more attractive. This is an interesting space to watch for the next 2 years. Will you invest in Starhub at current prices?

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Tuesday, February 7, 2017

My financial goals to make the most out of 2017

It’s a new year again. How has 2016 been for you? As we begin the new year, it is time to reflect on my goals for 2016.


Here are some goals I set for 2016:

Advancing in my career 

In 2016, I wanted to advance in my career after being in the same job for the past 6 years. I figured that if I continued to stay on, there wouldn’t be much progression. I also wanted to go into another industry and utilise my degree, which was in Economics.

I have started a new job in January 2017. It’s not easy to venture into the unknown, but I got a better offer with higher salary and I thought I should go for it while I still can. I'm prepared to face the challenges and excel in my work no matter what it takes going forward.

Saving at least 50% of my income

I set a goal to save at least 50% of my income in 2016, which I managed to do.

As compared to 2015, my expenses in 2016 had increased by about 90%, which meant I spent almost double of what I did in 2015. Thankfully, I managed to create additional income, which helped to offset my expenses for the whole year, and still allowed room for savings. This additional income came from stock dividends, writing, consultancy services and advertising income from the blog itself.

I'm happy to say the goals I set for 2016 were mostly achieved. However, as I have made plans to settle down with my partner in the next few years, higher expenses are expected. With that, my goal in 2017 is to plan for a life together with my partner, and for our future.

Goals for 2017 and Beyond

1. Buying a new home

I’m intending to save up for marriage and also for a house in the next few years . I will focus more on the housing part, where I plan to utilise my CPF savings. If not for the savings in my CPF account, I probably will not have enough to pay for it.


When planning my home purchase, I started off by looking at two key points:
  1. How much CPF can I use to pay for the downpayment?
  2. How much is the monthly loan instalment?

My budget for a house is $500,000, which is the average amount for a 4-room BTO flat in a mature estate, as seen in the November 2016 HDB BTO launch. We will want a property that is conveniently located near the MRT and also not too far away from town. I will probably pay a bigger sum of downpayment and take a $300,000 loan. The downpayment will be roughly $200,000, which we plan to pay for using CPF as well. For a $300,000 loan with a 25-year loan tenure and 2.6% interest, the monthly loan instalment will be $1,362. We want to make sure we have enough CPF funds to pay the monthly instalment and this amount is affordable for us. It is possible to settle housing matters just using CPF alone!


2. Rethinking retirement

With housing matters more or less settled using CPF, I started to think about whether I have enough savings to retire.  Using our CPF for housing will entail some tradeoffs even though our house is an asset which we may monetise in the future. I would still want to have enough savings in CPF for retirement without having to monetise my property.

The questions above made me embark on a daring numbers calculation to unveil how my CPF account grows over the years. I’ll use a simple calculation from age 25 to 35 based on the scenario and assumptions below:
  1. Starting balance of $5,000 in Medisave Account (MA), $18,000 in Ordinary Account (OA) and $5,000 in Special Account (SA) at age 25
  2. Median income of $3000 at age 25 and salary remains constant
  3. The interest rate of 2.5% p.a for OA and 4% p.a for SA and MA.
  4. No consideration for additional 1% interest in all the accounts
  5. Savings in OA is not used for housing 
With all the scenarios in place, how much CPF do you think each will have by age 35?

The answer: $205,406

The CPF accounts continues to grow after age 35 and interest is compounded year after year. Even with CPF used for housing, the account should still continue to grow.

Now, retirement is not only about the lump sum but also about how much we may need per month for our daily expenses when we retire. For retirement planning, CPF LIFE plays an important role. If we have the Basic Retirement Sum (BRS) of $83,000, we will get $700 - $750^ per month at age 65.

However, $700+ per month isn't a lot of money to me. I will definitely plan for higher payouts for my retirement. For myself, I will plan for a monthly retirement income of $4,500, taking into consideration inflation. A sum of $249,000, which is the Enhanced Retirement Sum (ERS) under CPF LIFE will pay out $1,860 - $2,000^ currently. The various retirement sums may be higher in the future, which might allow me to meet my target of $4,500 monthly payouts that I had planned for.

If you aim to have more in your CPF savings beyond your monthly contributions, you can consider topping up under the Retirement Sum Topping-Up scheme. We can also enjoy tax relief of up to $14,000 when topping up in cash - $7,000 tax relief when we top up our own Special / Retirement Account and an additional $7,000 when we top up for our parents, parents-in-law, grandparents, grandparents-in-law, spouse and siblings. I have topped up my parents’ CPF account in order for them to enjoy a more comfortable retirement when they reach 65. They will receive higher monthly payouts while I enjoy tax relief.

^Payout figures are estimates, based on the CPF LIFE Standard Plan and computed as of 2017


3. Focusing on my new job in 2017

As mentioned earlier, I've started a new job this year. It is a totally different job scope and industry for me so I will be learning new things and taking up new challenges to advance in my career. I will like to improve on my communications skills, build up my network and improve myself further.


4. Saving for the future

Saving money is still an important aspect in my life. However, over the years, I realised there is a limit to how much I can save if I do not increase my income. Changing jobs and creating more streams of income enabled me to earn more and save more in the process. Since I’ve started a new job in 2017, the focus will be on career advancement. I will be able to save 50% of my income easier with higher income now and in the future.

I will also be looking to increase my investments in stocks as I see opportunities to invest in the market the past few months and also in the upcoming year. Increasing my investments means more dividend income from stocks, which will also boost my cashflow and savings to redeploy in the market.


5. Relationship Goals

Besides money, relationships are important too. Because of my girlfriend’s encouragement and support, I feel I have become a better person. I hope I have given her happiness and made a positive impact in her life as well.

For the year 2017, I will strive to create a more positive impact for the people in my life and also through my blog. I have been inspired before and it really changed my life. I hope I can also be an inspiration for people in 2017.


The New Year 2017

What are your goals for 2017? If you've not created any goals, it’s good to spend some time to think of some goals you will like to achieve this year. Personally, setting goals has given me the motivation and purpose for my life. Why not set some for yourself and see how it works out for you?


SG Young Investment is a financial blogger in his late 20s who has a passion for finance and investment. SGYI has written more than 300 articles on housing, CPF, investments and personal finance which to date, has attracted more than 3 Million views on his blog.



Monday, February 6, 2017

Look Professional with Eminence Cufflinks

Online shopping is so prevalent nowadays that we can buy virtually anything from the comfort of our home. Cufflinks, which are one of the few rare accessories for men, make us look more professional regardless if we're wearing for work or meeting clients.

Eminence cufflinks approached me to review their products and I asked for some samples to check it out. I've not worn any cufflinks before and it looks interesting to me. They have quite a few unique designs which may be interesting to some of you here.




I asked for the tick tock design and it was really professional looking. The mechanical watch cufflink is actually a real working timepiece. For more designs, you can visit their website here: https://cufflinks.sg/



In collaboration with Eminence cufflinks, they have agreed to offer readers of SG Young Investment a 10% discount on their cufflinks. Just type in the code "SGInvest" to get the discount. This is applicable on top of any sales price but not applicable in conjunction with other discount codes. Valentines day is around the corner, this can be a good professional gift for any man out there.

Getting Out Of The Comfort Zone For Better Financial Health

Humans are strange creatures, many of us have different personalities and interests but one thing we all like is this thing called comfort zone. This sets the baseline for our life. The thing about comfort zone is everyone's zone is different. This is what makes it so interesting and how we can make use of this knowledge to have a better financial health.

We often hear the phrase "you need to get out of your comfort zone". This is especially true for young people as its the stage of life to explore and learn. However, even for older people, there's this phrase "it's never too old to stop learning". No matter how much we like the comfort zone and being comfortable with where we are, it can be a bad thing because it certainly means we have stopped learning and progressing.

If we want to continue progressing and having better financial health, getting out of our comfort zone is necessary. Let's explore how we can get through this uncomfortable feeling.

Where is your comfort zone?

Our comfort zone is the baseline for our life. This can be how we spend our money, where we have been working at for the past few years and our routines in life which we are comfortable with. The baseline of our life may or may not be good. We may see some problems for our future if we continue living the way we live now but are reluctant to change. This is called stuck in the comfort zone.


Getting out of the comfort zone is not easy. It requires us to change our routines. I've been blogging lesser due to my recent change in job which requires me to learn and adapt to a new environment. I was in my previous job for 6 years and got too comfortable. Taking the courage to get myself out of my comfort zone is not easy but a necessary part for me to progress in my life. The first 2 weeks were hell and it got way too uncomfortable. I was an engineer and now I changed to become a business analyst. I was overwhelmed with all the things I had to learn and change my routine which I've been doing everyday for the past 6 years. But, after awhile, the new routine starts to set in and a new zone will be formed soon.

Getting out of the comfort zone does not just apply to our jobs. What about our financial habits? For some, the comfort zone is to think before spending while for others, the comfort zone is to spend uncontrollably. Whichever is destructive for our future, we should try to get out of that comfort zone and change for the better.

If we always live from paycheck to paycheck with nothing left at the end of the month, this is our comfort zone. It becomes the baseline for our life where our wants become needs. To get ourselves out of this comfort zone, it requires courage and will not be easy at first. But, after awhile, we'll get used to a new comfort zone only if we take the first step to curb spending. From living paycheck to paycheck, we now have 20% savings left at the end of the month and this will become a new baseline for our life.

Secrets of the comfort zone

The secret to getting out of our comfort zone is knowing that this zone is defined by ourselves. After a change, we will get uncomfortable but it gets comfortable again very soon. The standard of that comfort zone also raises as we continue progressing. From being an intern in a company, we move on to taking up small executive roles and proceed to senior roles and finally the management level.

For our finances, progressing in a career will definitely improve our financial health as we have more income. Our comfort level of how we spend then determines where our final financial health will stand. Some of us may be comfortable overspending no matter how much income we have. This is a comfort zone which we may want to change. After being disciplined in our finances for awhile, we will find that we will no longer be comfortable overspending anymore.


How about financial freedom?

I've not talked about financial freedom for a long time on my blog. The past one year focus was on increasing income as I realised my expenses had to increase in the future to be more sustainable. Financial freedom is what many people yearn to have after working hard in our lives. It is the thought that finally I don't have to work in a job I do not like anymore just for the money.

Getting out of our comfort zone ultimately should lead to financial freedom. If we change job and earn higher income or progress better in our career, we can save more money. If we change our spending habits and start saving more money, we can reach financial freedom earlier.

How much exactly to save to reach financial freedom? I wrote some blog posts back in 2014 where if we save 75% of our income, we can retire in 7 years. Here are some other scenarios:

  • Save 50% of our income and reach FF in 17 years
  • Save 20% of our income and reach FF in 37 years 


Savings alone is not enough. We have to invest and compound the money. For the above scenarios, the compounded rate is 5% before retiring and 4% investment return after retiring. It works out that the amount saved and invested at 5% would have grown to an amount which would cover our current monthly expenses with just a 4% yield. You can read more on how it works here.

Therefore, getting out of our comfort zone to have better financial health requires 3 steps:

  1. Getting uncomfortable to progress in our career or business
  2. Getting uncomfortable to change our financial habits
  3. Getting uncomfortable to learn investing

Both increasing income, saving money and investing requires getting out of our comfort zone. Once we take the first step, it gets easier thereafter. Are you prepared to get out of your comfort zone in the new year for a better financial health? I have to remind myself too.

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Tuesday, January 17, 2017

Can't Get BTO Flat? What Are The Other Options Available?

Applying for a BTO may not be as easy as it seems with many couples trying many times and still can't get the flat they want. BTO stands for Build To Order where the government will launch new flats every 3 months for couples to try their luck in getting one of the units. The November 2016 BTO was especially hot with good areas such as Bedok, Kallang and Bidadari (Toa Payoh). All these locations were right beside the MRT and needless to say, all were oversubscribed with the highest at 9.7 times oversubscribed for Kallang Residences. The results of the BTO were out just last week.

Besides the difficulty to get a flat under the BTO scheme, couples still need to wait approximately 3-4 years for the flat to be completed. This seems like a long time and delays marriage plans for any couple. Taking into consideration the challenges, are there any other options which couples can go for besides getting a BTO? There are indeed some other options and we shall take a look at it in this article. 



Can't Get BTO Flat? What Are The Other Options Available?

I'm sure everyone will agree a flat is important for a couple to have their own private space. Some may say its ok to live together with parents or in laws but honestly, who doesn't want their own home when they get married? Yes, an option if you can't get the BTO, is to stay together with your parents or in laws. If both are fine, then this is a fuss free choice and the couple can then slowly apply for the BTO of their choice and have all the time to wait until they get the flat and for the flat to be completed. 

If staying at parents or in laws house doesn't work, the other option is to get a resale flat. Hold on... getting a resale flat does it mean I won't get the subsidies which BTO has? Will I forfeit my chance of getting a BTO if I buy a resale flat? What are the other considerations?


Buying a resale flat

The advantages of buying a resale flat is you can choose any locations you want. You can source for the best property and go house hunting to make better decisions for the purchase. Yes resale flats are definitely more expensive. A 4 room resale flat in Ang Mo Kio cost $600,000 to $750,000 while in Serangoon, it cost about $480,000 to $620,000. Of course we can also look at less centralised areas like Hougang which cost $380,000 to $520,000. All the properties are located near to MRT.

A BTO in similiar areas will cost about $50,000-$100,000 cheaper as they are subsidised flats. For resale flats, there are also subsidies for first time buyers but there are certain conditions to take note of. 

Do take note that if you're purchasing the resale flat under the FiancĂ©/FiancĂ©e Scheme, you must:
  • Register your marriage with the Registry of Civil Marriages or Registry of Muslim Marriages
  • Submit your marriage certificate to HDB within 3 months from resale completion date 
If applying for CPF Housing Grant:
  • You must submit your marriage certificate on or before the resale completion date

Subsidies for resale flats

With resale flats at higher prices, the government also provides subsidies for home buyers. Here are the subsidies for resale flats:

Family Grant

The grant available for this scheme is $30,000. To be eligible, your household income must not exceed $12,000 (revised from $10,000 before 24 August 2015). You must be a Singaporean and form a family nucleus with another Singaporean or PR. This grant is only available for first time home buyers.

Additional CPF housing Grants

Families who earn up to $5000 will be eligible for additional housing grants under this scheme. The maximum grant available is $40,000 for those with less than $1500 monthly household income and minimum $5000 for household earning $4,501 - $5,000.

Proximity Housing Grant

Under this scheme, you can receive $20,000 in grant.

The eligibility criteria is:

Your parents/ married child are:
  • living with you in the resale flat
  • living in an HDB flat in the same town or within 2km
  • owner-occupants of private property in the same town or within 2km
If you fulfil all the above 3 criteria, you can get as much as $55,000-$90,000 in grants to buy your resale flat. This is quite a lot of subsidies. 


Disadvantages of resale flats

Even though resale flats provide the flexibility to choose and don't need to wait a long time for it, there are also some disadvantages. Firstly, choosing a good location for a resale flat is important. This is in case you want to sell it in the future. Buying a resale flat in a bad location may mean it is harder to sell it in the future. 

Secondly, some of the resale flats may be very old and their lease may be left less than 50 years only. A short lease makes it harder for other buyers to take loan from the bank and thus affects the number of buyers who can purchase your flat. This makes it difficult for selling later too. 

If buying a resale flat, it is better to choose a good location and a flat which is not too old. 

Will buying resale affect my chances of getting BTO in the future? 

Some couples may think of buying a resale flat to stay first temporarily and then try for BTO again later. In this case, will it affect your chances of getting a BTO?

Some rules which we need to take note of is when we buy a resale flat, we have to fulfil a minimum occupation period (MOP) of 5 years. This means we can only sell the house after 5 years. 

If you do not want your chances of getting a BTO to be affected, you should buy a resale flat without taking the CPF housing grants. It is stated clearly on HDB website that your BTO will be treated as a first-timer application if you and any of the other listed owners and essential occupiers meet the following criteria:
  • Not the owner of a flat bought from HDB, or an EC/ DBSS flat bought from a developer
  • Not sold a flat bought from HDB, or an EC/ DBSS flat bought from a developer
  • Not received any CPF Housing Grant for the purchase of an HDB resale flat
  • Not taken any form of housing subsidy (e.g. benefitted under the Selective En bloc Redevelopment Scheme (SERS) or HUDC estate privatisation)
It is clear that if we have received any CPF housing grants for the purchase of a resale flat, we will not be considered as a first time applicants for a BTO later on.

The Next Steps

Discussing with your partner is important if you didn't manage to get the BTO in the last exercise. There are certainly other options available which we can go for. The important thing is to plan long term as buying a house is a long term commitment. 

Looking to buy a property? Here's Your Complete Guide To Buying A Property In Singapore

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