May I know how to find an undervalued stock which health, profitability, dividend are good to buy now? - Seedly
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Stephanie Chin

Asked on 14 Jun 2020

May I know how to find an undervalued stock which health, profitability, dividend are good to buy now?

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Sharon
Sharon
Level 7. Grand Master
Answered on 15 Jun 2020

Looks like you are dividend hunter.

I would consider market cap ($500m) as one of the metrics. It is to ensure there's sufficient trading volume - so you can buy and sell easily. Because some stocks may be undervalued but if there's very little transaction, it may take a few days for your buy/sell order to be filled and that's not very ideal.

You should also check for Dividend to Free Cash Flow Ratio & Dividend Payout Ratio (no more than 100%).

Some companies keep the Dividend Payout Ratio around 40-50% (makes them look good) but when you look at Dividend to Free Cash Flow Ratio...OMG, it hits beyond 100% and somemore increasing every year. What this means, is they're paying some portion of dividends from their cash reserves.

Dividends should be paid from their earnings. If every year, they dig into their reserves to pay shareholders, how long will it last? You have to be wary of this.

Management to me is another important area you need to look at. If they're paying dividends from their reserves, what do this action tells us? I think maybe they're very confident that the company will grow and outpace the withdrawal (hopefully not over confident like Trump and everything just crashes) or the management is greedy.

Sometimes, the amount paid from dividends exceeds their salary in a year (like Hyflux). Which is the real "salary"?

Also, avoid those companies that raise capital (issue bonds or stocks) more than they give out (share buyback, dividends). You will need to examine their Annual Report data for at least 5-10 years to see if there's a pattern.

Hope this helps. It can be satisfying to see your money grow, but it will need to take some work to reach there.

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Yh.lens
Yh.lens
Level 6. Master
Answered on 15 Jun 2020

You have to do your fundamental analysis. A few key factor to look out for are things like ROE, Current Ratio, Debt/Equity, Operating Margin, YoY Growing Revenue + Profit. Also have to note the industry and macroeconomic environment surrounding it. As well as a strong economic moat. If you are looking for steady dividends, lookout for slow growers (the giant companies) eg DBS. If you are looking at stalwarts and fast growers they are usually Mid-Cap or Small-Cap companies. Won't tell you exactly which stock isit but if you do some research you will be able to identify them. Hope this helps!

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Jack
Jack
Level 4. Prodigy
Answered on 15 Jun 2020

Screeners can be used. SGX, your own brokerage, yahoo finance are some free screener you can use.

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