ANZ.NZX - Anyone holding?

[h2so4]

Hmm....two valuations for the same company.

I'm not sure of the logic of dividing dividend by yield to get the share price.

[Snoopy]

Hmm....two valuations for the same company.

I'm not sure of the logic of dividing dividend by yield to get the share price.

I am trying not to mystify anyone SSD. If you understand how to calculate yield, and can follow algebra, all I have done is to rearrange the 'yield' equation.

Dividend / Share Price = Yield <=> Dividend / Yield = Share Price

The reason why there are two different valuations is that if you are a New Zealand owner you get one income stream. If you are an Australian owner you get another slightly different income stream (different because of the different tax treatment).

If your income stream changes then your yield changes. Logically if you are getting a higher market yield, the company share that is giving you that yield will be worth more to you.

Of course this way of valuing a share is fairly crude. I am assuming one constant dividend stream that does not change from year to year. Rather than picking last years number, I am calculating a dividend stream based on the average of dividends paid over the last five years. If the actual dividend this year differs from that five year average, then my valuation will be out.

Furthermore I have taken no account of the business cycle. In a 'good' year my valuation will likely be too low. In a 'bad' year my valuation will likely be too high. My valuation is based around the mythical 'average' year. HTH

SNOOPY

[macduffy]

My valuation is based around the mythical 'average' year. HTH

So it's a mythical valuation, Snoopy? And the point of it is ?

[Snoopy]

So it's a mythical valuation, Snoopy? And the point of it is ?

No-one knows when the quintessential average year is. It is only knowable after the event. And by then everyone in the market knows it has happened. So there is nothing to be gained from investing with knowledge that all the market has and is already built into the share price.

However, if you know the banking market is cyclical, then it should pay to invest when market sentiment is at its lowest. If you know what the long term average is, then you have a good chance of identifying when the share price is low in a cyclical sense. The game is to 'accumulate' when the share price is low and 'reduce your holding' when the share price is high. One of the best ways to figure out whether today's share price is 'low' or 'high' is to look at it relative to the long term average of where the share price should be. This makes knowing what the long term average is, the one based around our mythical 'average year' (which may or may not occur in practice) a valuable thing for an investor.

SNOOPY

[Lewylewylewy]

No-one knows when the quintessential average year is. It is only knowable after the event. And by then everyone in the market knows it has happened. So there is nothing to be gained from investing with knowledge that all the market has and is already built into the share price.

However, if you know the banking market is cyclical, then it should pay to invest when market sentiment is at its lowest. If you know what the long term average is, then you have a good chance of identifying when the share price is low in a cyclical sense. The game is to 'accumulate' when the share price is low and 'reduce your holding' when the share price is high. One of the best ways to figure out whether today's share price is 'low' or 'high' is to look at it relative to the long term average of where the share price should be. This makes knowing what the long term average is, the one based around our mythical 'average year' (which may or may not occur in practice) a valuable thing for an investor.

SNOOPY

Which is exactly what I do with ANZ. I buy when it reaches $28, then I sell when it's above $31. Not a massive profit, but always a good punt because if it goes south you get nice dividends, if it goes well, you get div plus profit.

[macduffy]

One of the best ways to figure out whether today's share price is 'low' or 'high' is to look at it relative to the long term average of where the share price should be.

The problem that I have with that approach is that the "current" price is influenced by a multitude of factors - current economic conditions; competitive trends eg is a particular company gaining or losing market share; or is it ahead of or behind technological change in the industry; attitudes of regulators, etc. In short, the "long term average of where the shareprice should be" may be becoming of historical, rather than predictive, interest.

Disc: Long term holder of Aust bank shares, well before ANZ NZ was listed as a separate company - which of course was before ANZ Group bought that company out.

[huxley]

Disc: Long term holder of Aust bank shares, well before ANZ NZ was listed as a separate company - which of course was before ANZ Group bought that company out.

Huh? ANZ nz isn't listed as a separate company...

[macduffy]

Huh? ANZ nz isn't listed as a separate company...

No, but it was once. ANZ (Group) spun off the NZ arm, probably about 30 years ago, then bought it back several years later when the thinking was that a larger, unified group would have more clout in the market - " maximise the power of the larger balance-sheet" was the idea.

[Snoopy]

The problem that I have with that approach is that the "current" price is influenced by a multitude of factors -

If you look at any 'dividend capitalisation valuation' (for that is what I am doing) there is plenty that can go wrong, some of which macduffy has outlined.

current economic conditions;

This is why I have chosen to look over a five year period and take the average, effectively smoothing out the 'current economic conditions'.

competitive trends eg is a particular company gaining or losing market share;

If the long term growth is up or the long term growth is down then basing everything about a long term steady dividend stream will not work. However, I do note that many companies tend to keep their dividend streams more steady than their earnings streams.

But if gaining and losing market share ends up being an ebb and flow about an average, then assuming the market will be steady state long term will work.

or is it ahead of or behind technological change in the industry;

'Industry disruption' could smash the steady state dividend model apart. That's true.

attitudes of regulators, etc.

The current attitude of regulators, requiring banks to bulk up on their capital requirements, was to some extent the catalyst in my looking to apply a 'dividend capitalisation model'. I think it is going to be difficult to grow under current NZ and Australian bank policy settings.

In short, the "long term average of where the shareprice should be" may be becoming of historical, rather than predictive, interest.

Yes it might. Although I should point out that if you use a rolling five year window of historical results as your predictor then the model will follow some of the changes in the market, albeit with a lagging effect.

The main point though, is that if a particular valuation method no longer works, you are allowed to throw it away and use something completely different.

SNOOPY

[percy]

I find greater safety buying shares that have eps growth.They have the capacity to keep increasing their dividends.