Continuing to build apartments, patiently waiting for profits to flow

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It has been a trying time again at Dividend Tycoon HQ. While there are a few exceptions, much of my portfolio is stuck in a no growth phase, share prices are stagnant to down.

While I have been reading and re-reading my article on organic growth, where I had stated that I do not want to make any changes to my portfolio for a while, sometimes plans get interrupted and stuff happens.

The stuff that happened of late, is that my property developer stock, Balwin Properties has sunk somewhat, to under R5. This stock earned R1,31 last year, so is now on a price earnings ratio of 5 or less, even if earnings were to sink to R1, which I believe is doubtful. That means it is likely to be yielding 20%, or more. Certainly in the next year or two things may be difficult because they are in the start up phase of some huge projects, and South Africa is currently in a difficult political/economic environment. But in a few years profits should flow nicely.

I felt I could not let the opportunity slip and have increased my stake in this company by 15%, making it my second biggest holding. I managed to acquire shares at R4.85 and will receive an interim 10c dividend shortly.

The bad news is I did have to make some sales to fund the purchase. My sales were some European property stocks, which were trading above their Net Asset Value and in the case of one on a very low yield after appreciating by over 50% in the last year. This would be contrary to what most investors would be doing right now in South Africa, as there is a great deal of pessimism around South Africa Inc stocks, and a love for anything ‘offshore’, given the uncertain political outlook. I do believe however that every asset has a price, and that I will be rewarded for the switch.

I will now need to be patient with this stock, it is now a cornerstone of my portfolio, and I will need the profit it can generate, and the resultant dividends (30% of profits) to build my portfolio further. There may be a few tough years, but it can start to churn out massive profits if the market picks up. I see it as my own business, and like any other property developer, I will be able to take some of that profit and build my asset base, although not necessarily in property. A stock that yields over 20% should help me with this far more than one yielding less than 5%.

It should be noted that I also invest based on what one could call qualitative factors, and I am quite impressed by the CEO of Balwin Properties. He has built a big business in 21 years and is hungry to do more. I have attended two results presentations now, and have come away from both feeling assured that I have partnered with a company that can do very well.

Hopefully not much will be happening in the long term portfolio, although I have a few ideas bubbling away.., so things may be quiet here till the new year. I will see though and may write another more general article before the Christmas break. If any readers are off on holiday, I hope you will enjoy them and return to Dividend Tycoon in the new year.

Disclaimer: As always this is a risky stock, in a risky industry. Do your own homework. What I have is written is merely my opinion and certainly not a recommendation.

 

 

 

 

 

2 thoughts on “Continuing to build apartments, patiently waiting for profits to flow”

  1. Also like Balwin – and am also considering adding to it. Where are you getting a 20% dividend from? Maybe in few years time. Not that 10% is shabby by any means. Personally, like getting some income based in euro’s and pounds – when you retire, having your income from a mixed basket of currencies I think it a good thing.

    1. Hi Alec

      The 20% is the earnings yield, not dividend yield (I wish!). So if Earnings per share are R1.20, and I pay R4,80, it was on a 25% yield for example. Ultimately earnings yield should flow to owners though in either dividends or an expanded business, although not always depending on the company. Also want to increase offshore earnings, but could not resist this purchase, seems very cheap to me, but caveat emptor of course.

      Regards,
      DT

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