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8-step: Netlink Trust

Q&A › Category: Dividend Stocks › 8-step: Netlink Trust
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Valerie asked 6 months ago
Hi Rusmin  I completed the 8-step assessment for Netlink Trust and seek clarification on the following points.
  1. Dividend Payout Ratio (calculations attached)
  • Understand that we should be using (FCF per share = Operating CF less Property, Plant and Equipment)  to replace EPS for Business Trust. 
  • For Operating CF, as there are 3 components of Cash flow from Operating activities from the annual reports: Operating cash flows before working capital changes/ Cash Generated from operations/ Net cash generated from operating activities, can I take Net cash generated from operating activities when calculating this ratio?
  • Understand we need to remove PPE from the Operating CF, is this amt referring to the PPE being written off? Do we need to add back gain on disposal of PPE?  Also, for my understanding, what's the rationale for the adjustments of PPE to the FCF calculations?
2. Valuation 
  • Based on my calculations, it appears that the range of the 5 year historical dividend yield is around 4.81% (overvalued) - 6.36% (undervalued), can I confirm if this range looks right? 
  • Based on current price ($0.87), dividend yield is around 6.09%, how far off from this range (4.81% - 6.36%) do you start entering/ selling?
Thanks in advance! 
Attachments
Netlink-NBN-Trust-SGX.CJLU_.pdf
1 Answers
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Rusmin Ang Staff answered 6 months ago

Hi Valerie

Let me answer your questions below:

1. Yes, you can take Net Cashflow from Ops less PPE. You can add back those gain from disposal where the amount is usually quite small. Free Cash Flow is the free cash that the company uses to pay dividend, share buyback or keep it in the bank. Dividend will be more sustainable if the dividend paid is less than free cashflow. When a company pays beyonds its free cash flow, the company has to folk out more cash (on top of the FCF) or borrow money to do so. That's why it is more sustainable for a trust to pay within their free cash flow.

2. You did very well for this! So the best entry time will be when it is near the high yield. The way I interpret it, it is quite reasonable to accumulate once yield more than 6%, after further checking that there is no structural change in business fundamental.

Valerie replied 6 months ago

Got it, thanks Rusmin!