RBD - Restaurant Brands

[winner69]

Your old mate Bongo rates RBD a buy and says at least a 'dollar and a half'

He's also glad that they finally listened to him and going to hock off some the Puzza Hut stores .... something he told them do years ago when he had a significant shareholding

Thought you would like to know that Snoopy

[Snoopy]

Your old mate Bongo rates RBD a buy and says at least a 'dollar and a half'

He's also glad that they finally listened to him and going to hock off some the Puzza Hut stores .... something he told them do years ago when he had a significant shareholding

Thought you would like to know that Snoopy

It is all very well rating RBD as a buy. But has Bongo bought any? And have any of Bongos investments in other retailers been as successful as my own investment in RBD in particular or retail in NZ in general over the years?

I am a true long term investor in RBD, having been on the share register since the company listed in June 1997 (albeit in a small way). I bought the shares not to 'get rich quick', but for income. Over the years I have built up my shareholding a lot, with what I would call judicious buying. My overall capital gain over that time has been, wait for it, nothing. Any time soon I expect Phaedrus to pop up with a long term chart to show what a failed investment this has been. However, if you look at the dividends that have been paid over the years you will find a rather different picture.

Dividends since listing have totalled 96c per share, including the effect of the 1:12 bonus issue on 30th March 2000. We can therefore look at the average compounding return aover those twelve years as follows:

($1.02)(1+i)^12=($1.02+$0.96)

This gives an average compounding return of 5.7% after tax or 8.5% before tax - all of it due to dividends in my case. This is a good result which has been achieved despite the fiasco of the RBD expansion into Australia, and in more recent times the huge problems with Pizza Hut in New Zealand.

Of course those shareholders who bought in at the float at today's equivalent price of $2.03 - the literal buy and hold brigade- will not be doing so well. The secret to investing in RBD for me has been buying when the price is low and people cannot see the underlying strength of the business above the raft of negative news.

Over the last twelve years my overall 'retail investment strategy' in NZ has been surprisingly focused. Before I first held RBD I held no retail shares on the NZX at all. For a while I became a WHS shareholder too. But I sold out after the Australian expansion failed (for a nice little profit it must be said) into the Foodstuffs takeover offer at $5. Over the subsequent months I carefully reinvested that capital into RBD as well.

Overall then my time with RBD has been a roller-coaster ride with more down times than up times, yet I have come out well ahead. Therein lies a lesson to the 'dividend denying' out there.

SNOOPY

discl: Have held RBD for 12 years over which time the share has grown from my smallest NZX investment, to the point today (boosted by the partial share price recovery over the last few months) to my largest NZX investment.

[Phaedrus]

I am a true long term investor in RBD, having been on the share register since the company listed in June 1997. My overall capital gain over that time has been, wait for it, nothing.

Well, there it is again Snoopy. Another 10 - 12 year "investment" for zero capital gain - this, in spite of RBD having risen over 70% recently. It is painfully obvious that you are doing something wrong.

Any time soon I expect Phaedrus to pop up with a long term chart to show what a failed investment this has been.

Failed is such a strong word Snoopy. I would prefer to categorize it as a very poor investment. Especially when you compare it to the average market gains of about 100%, over this period.

However, if you look at the dividends that have been paid over the years you will find a rather different picture.

'Fraid not. RBD has been in a long-term downtrend for the last 8 years, and has a confirmed trendline in place. Over this extended period of time it has fallen an average of 15 cents/year - notwithstanding the recent 70% rise! A dividend of around 8 cents/year is not enough compensation for such capital destruction.

The secret to investing in RBD for me has been buying when the price is low.

I don't think too many people would be interested in emulating your "secret", Snoopy! You also need to be able to sell when the price is high. Buying is only half the story.

Overall then my time with RBD has been a roller-coaster ride with more down times than up times...

See that? Right there is the main reason for Snoopy's conspicuous lack of success. "More down times than up times"? Folks, that's called a DOWNTREND. You don't want to be buying (or holding) downtrending stocks - whatever their dividend yield! Why fight the market?

I have held RBD for 12 years over which time the share has grown from my smallest NZX investment, to the point today to my largest NZX investment.

People, read that statement carefully. This is PRECISELY what happens when you "average down" and it is the other reason for Snoopy's woeful underperformance. This undesirable state of affairs is the logical consequence of continually adding to a losing investment, of buying more of a downtrending stock as the price progressively falls. YOUR WORST INVESTMENT BECOMES YOUR BIGGEST INVESTMENT. This is the exact opposite of what you want. Your largest investment should be your BEST. This occurs quite naturally as a logical result of following the old rule "Cut your losers and let your winners run".

When your biggest investment has returned zero capital growth in 12 years, something is FUNDAMENTALLY wrong.

[Zito]

I agree with you Phaedrus, especially with respect to your largest investment being your best by 'natural selection'. Always cut your losers.

I note that RBD is respecting its long-term trendline linearly on your chart rather than the oft-drawn logarithmic trendline. This indicates to me that the trendline is falling at a greater average percentage from one year to the next.

If it was a log chart...am I correct in thinking (because I haven't checked for myself yet) that the price action is even further away from the trendline than it appears on the chart above? Why would anybody bother with it.

All this talk about Pizza Hut, KFC, blah blah blah is a waste of time when one look at a chart like this tells you all you need to know about whether it is a good investment.

NO.

[Snoopy]

Well, there it is again Snoopy. Another 10 - 12 year "investment" for zero capital gain - this, in spite of RBD having risen over 70% recently. It is painfully obvious that you are doing something wrong.

Failed is such a strong word Snoopy. I would prefer to categorize it as a very poor investment. Especially when you compare it to the average market gains of about 100%, over this period.

Phaedrus the NZX50 is a gross index that includes dividends. You have to add on the dividends to get a comparable result. So my gains have actually been 94% (or 100% in round figures). More or less the same as the index. Not 'zero' as you claim.

'Fraid not. RBD has been in a long-term downtrend for the last 8 years, and has a confirmed trendline in place. Over this extended period of time it has fallen an average of 15 cents/year - notwithstanding the recent 70% rise! A dividend of around 8 cents/year is not enough compensation for such capital destruction.

You have set up a straw man Phaedrus. The capital loss of buying twelve years ago while just waiting and collecting dividends is not a sufficient reward - Quite right. But that is not what I would recommend. And that is not what I did.

People, read that statement carefully. This is PRECISELY what happens when you "average down" and it is the other reason for Snoopy's woeful underperformance. This undesirable state of affairs is the logical consequence of continually adding to a losing investment, of buying more of a downtrending stock as the price progressively falls. YOUR WORST INVESTMENT BECOMES YOUR BIGGEST INVESTMENT. This is the exact opposite of what you want. Your largest investment should be your BEST. This occurs quite naturally as a logical result of following the old rule "Cut your losers and let your winners run".

"Your largest investment should be your BEST." Sorry I can't agree with that Phaedrus. As a long term investor I am always working towards a balanced position, not a skewed one.
So I am always looking to add to my worst investment before topping up my best.

I notice you are speaking as though there are only 'good' and 'bad' investments Phaedrus. For a long term investor this distinction is not the way investments are defined. There are plenty of good investments out there that I wouldn't touch because they are poor value. Likewise there are 'bad' investments out there that I seek because the market has discounted them out of all proportion to their actual 'badness'. If my biggest investment is also my best, then this is a potentially dangerous situation. Such an investment becomes vulnerable to the double investment risk of earnings reduction and earnings multiple reduction. Long term investment is all about balancing relative value. Not seeking out the 'good' and the 'bad'.

When your biggest investment has returned zero capital growth in 12 years, something is FUNDAMENTALLY wrong.

It is not all about capital growth Phaedrus, it is about total returns. You can't just continue to ignore dividends. As shown in this case this has lead you to a massive error of judgement. Your view is that I have made nothing in the last twelve years, when simply adding up the dividend returns means that the sum of dividend returns has actually been 94%. A huge difference which you refuse to acknowledge.

The main reason for the lack of market capital growth of RBD Phaedrus is that:

1/when the company listed in 1997 is because it was floated with a puffed up PE multiple.
2/ when a company pays out almost all of its operational earnings as dividends (as RBD did until two years ago) you would not expect the price to rise.

There has been no significant underperformance here Phaedrus.

A return of 5.7% after tax compounding return will turn $1000 into

1000(1+0.057)^12= $1945 after twelve years, such is the power of compounding

On average that equates to an annual return of $1945/12= $162.08 per year.

That means that if you wanted to get that same return at the bank, you would have to look for a bank blackboard one year return rate of 16.2% -after tax. Or 24% before tax (assuming a tax rate of 33%). How many banks do you know year in year out that have offered a return like that?

My investment in RBD has done exactly what I went into it for. It has paid a good regular income over twelve years and outperformed the banks *significantly*. Sure my capital has not grown, but neither has it shrunk. This is exactly what you would expect from an analagous bank term deposit in fact. You need to look at your measuring stick Phaedrus, if you think a performance like that is poor.

SNOOPY

[Snoopy]

There has been no significant underperformance here Phaedrus.

A return of 5.7% after tax compounding return will turn $1000 into

1000(1+0.057)^12= $1945 after twelve years, such is the power of compounding

On average that equates to an annual return of $1945/12= $162.08 per year.

That means that if you wanted to get that same return at the bank, you would have to look for a bank blackboard one year return rate of 16.2% -after tax. Or 24% before tax (assuming a tax rate of 33%). How many banks do you know year in year out that have offered a return like that?

Before anyone else picks me up on these calculations, I should point out that in my attempt to simplify the maths in calculating my returns, the figures above do not tell the correct story.

Income investors in RBD at any one time are considering what the yield is at the time they make their investment. This is not the same working out an average yield by summing the income over the whole investment period and dividing by the time of the whole investment period as I have done above. The instantaneous yield changes both with the prevailing share price and the actual dividend paid out. If we now look at an investor who invested on 30th September each year, the actal yield achieved over the subsequent twelve months was as follows:

Year, RBD Share Price 30th Sept, Dividend, Net Yield, Gross yield, Typical Bank rate

1997: $2.37, 3c, 1.3%, 1.9%, 6.5%
1998: $0.80, 7.5c, 9.4%, 14.0%, 6.5%
1999: $1.30, 10.25c, 8.0%, 11.9%, 5.5%
2000: $1.14, 9.0c, 7.9%, 11.8%, 7.0%
2001: $1.56, 8.0c, 5.1%, 7.7%, 5.5%
2002: $1.72, 9.0c, 5.2%, 7.8%, 5.2%
2003: $1.25, 9.0c, 7.2%, 10.7%, 4.9%
2004: $1.29, 9.0c, 7.0%, 10.4%, 5.6%
2005: $1.40, 9.0c, 6.4%, 9.6%, 6.25%
2006: $1.08, 5.5c, 5.1%, 7.6%, 7.0%
2007: $0.87, 6.5c, 7.5%, 11.1%, 8.0%
2008: $0.65, 7.0c, 10.8%, 16.0%, 7.75%

The second to last figure in each row is the return that should be compared to prevailing term deposits, the last figure in each row. As you can see in all years bar the first (1997), there has been a big advantage in investing in RBD instead of in the bank. (Forget that 24% equivalent figure in my last post).

The numbers are different but the conclusion is not altered. If you can invest in RBD using whatever method you choose - and retain your capital as I have done-, this has been a very successful investment over the years.

SNOOPY

[Lego_Man]

I'm not going near this argument, but Snoopy will also have enjoyed tax advantages from not having his capital gains taxed.

[Zito]

The point that is often missed is that using technical entry/exit points does not necessarily a trader make.

It is quite possible to use TA and be a long-term holder of a stock in much the same way that Snoopy has with RBD. Just because you use TA to time your entry and exit points does not mean that you are automatically tax liable. You could have held FBU continuously for 4 years using TA entry and exit from 2003-2007, collecting both dividends and capital gain along the way.

[Snoopy]

I'm not going near this argument, but Snoopy will also have enjoyed tax advantages from not having his capital gains taxed.

Not in this case Lego Man. My average entry price was $1.02. As I write this the market price is $1.02. I haven't made any capital gains, so my 'saving' in 'capital gains tax' (trading income tax) is nil.

A trader who has made some trade profits along the way (if there is such a person) will be ahead on a capital basis. Because the fact that they have paid tax on capital gains over and above trading costs indicates that they have actually made a capital profit. And any capital profit is better than none. (Except that is if being out of RBD means that you have missed out on the greater benefits of the dividends that the 'buy and hold' investor has banked by just doing nothing.) Clear as mud yet?

SNOOPY

[Jay]

I'm not going near this argument, but Snoopy will also have enjoyed tax advantages from not having his capital gains taxed.

That is because he has not made any.
Simple example:
Has a $1.00 earns 30c
Tax 10c say
Result = capital now $1.20

Snoopy's capital still $1.00