Topic 5: Are my shares performing?

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1 Topic 5: Are my shares performing? The first thing to ask yourself when trying to determine whether your shares are performing is, what am I trying to achieve and are my shares providing me with what I am after? Is your investment objective to generate an income (through dividends), either to reinvest or live off or; Dividend yield is calculated as follows Annual Dividends Per Share Price Per Share Is your objective to achieve capital growth within a certain timeframe? The value of shares is measured in terms of return on investment, for example: Is the company paying a dividend providing you with an income? Is the dividend yield sufficient? Does the dividend increase over time (dividend growth)? Does the investment offer capital growth (increased share price over time?) An example of dividend yield If two companies both pay annual dividends of $1 per share, but company A s stock is trading at $20 while company B s stock is trading at $40, then company A has a dividend yield of 5% while company B is yielding 2.5%. If we assume that all other factors are equivalent, an investor looking to supplement his or her income would likely prefer company A s stock over that of company B. Dividend yield Dividend yield is a way to measure how much income you are getting for each dollar invested in a company (e.g. how much a company pays out in dividends each year relative to its share price and effectively how much bang for your buck you are getting from dividends). Company A Company B Share Price: $20 Dividends: $1 per share Share Price: $40 Dividends: $1 per share 5% dividend yield 2.5% dividend yield 10 \ CRAIGS INVESTMENT PARTNERS

2 Share performance examples The below table shows some shares and how these have performed including: Share prices in 2000, current prices and share price growth (capital growth) Dividends in cents per share (cps), both in 2000 and forecast dividends for 2016 Dividend yield in 2000, forecasted yield for 2016, and yield based on share price in 2000 Dividend growth per annum Share price Gross DPS for NZ investors (cents) Gross yield for NZ investors Code 1 Jan Apr 2016 Capital growth (%pa) Dividend growth (%pa) 2000 Current Yield Yield based on 2000 price New Zealand TrustPower TPW $2.05 $ % % 5.1% 5.1% 19.6% Port of Tauranga POT $2.98 $ % % 7.5% 3.7% 23.4% Ryman Healthcare RYM $0.43 $ % % 2.5% 2.1% 42.8% Auckland Airport AIA $0.87 $ % % 5.2% 3.9% 28.2% Mainfreight MFT $1.82 $ % % 4.9% 3.2% 29.0% Contact Energy F&P Healthcare CEN $3.30 $ % % 7.7% 7.7% 11.9% FPH $1.46 $ % % 5.5% 2.9% 18.6% Average 12.1% 9.9% 5.5% 4.1% 24.8% Term deposit 6.7% 3.2% 3.2% Investor Basics Investing in Shares / 11

3 Price/Earnings (P/E) ratio P/E ratio is a valuation ratio often used together with dividend yield to determine the value of a share. By assessing the P/E ratio of the company, investors can evaluate whether the company appears over or underpriced. Investors can look at the current P/E ratio and the forecast P/E ratio to determine the value of the company. P/E ratio can be useful for comparing similar companies, but is one of many measures used to determine the value of a share. An example of P/E ratio Company A s share price is $30 and provides an earnings per share (EPS) of $2 and hence has a P/E ratio of 15. Company B has a share price of $30 also but offers an earnings per share of $4 (P/E ratio 7.5) If an investor would invest in Company B they would effectively pay less for the same amount of earnings. Shares can trade at a wide range of different PE ratios, depending on a range of factors, including their future growth prospects. Generally, most shares trade within a range of between 12 and 25 times. While a PE is a helpful guide to value, there are also other considerations. A P/E ratio is calculated as follows Market Value per Share (price per share) Earnings per Share (EPS) Company A Company B Share Price: $30 EPS $2 = P/E ratio 15 Investor pays $15 for every $1 of earnings Share Price: $30 EPS $4 = P/E ratio 7.5 Investor pays $7.50 for every $1 of earnings 12 \ CRAIGS INVESTMENT PARTNERS

4 Using a benchmark One way of measuring the performance of your shares is to identify a benchmark to monitor your shares performance against. A useful method is to use a share market index. A share or stock market index is used to measure a collection of shares within the stock market. There are different types of indices measuring different types of companies. In New Zealand the most common index is the NZX50 comprising 50 of the largest, most widely traded and most liquid companies listed on New Zealand s stock market (NZX or more specifically NZSX). The NZX 50 is the main benchmark for measuring individual New Zealand stocks and investment portfolios. Indices, such as the Dow Jones, FTSE, S&P are examples of other overseas indices which can be used to measure different groups of investments or companies. Some indices provide an indication of share price movements and others factor in both share prices and dividends. This can be useful when monitoring the share price performance of your shares. For more informatione about the different indices, please read the Overview of Investing booklet. Investor Basics Investing in Shares / 13

5 Sharemarket table Sharemarket tables are included daily in major newspapers, indicating how the market in general is tracking as well as individual companies. Below is an explanation of the different areas of a share table. 1 New Zealand Markets (example only) Wed, 7 Jan, 2015 Last FOUR weeks Last TWELVE months Top 10 TURNOVER 2a Biggest 10 RISES 2b NZX Dec 5 Dec 12 Rises Falls Issues traded Volume traded Value traded ($) d 1b 1a Dec 19 Dec 30 Jan 6 1c Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 2 Spark NZ GuinnessPeatGroup Precinct Prop NZ BLIS Tech Sky Network TV Mighty River Air NZ Trade Me Group Ltd Argosy Top 10 VALUE Spark NZ Sky Network TV Fisher&Paykel Health Trade Me Group Ltd Mighty River Westpac Precinct Prop NZ Fletcher Building Air NZ 2c Enprise Group OceanaGold Corp (NS) Trilogy Green Cross Health Mighty River Precinct Prop NZ Methven Spark NZ Airwork Holdings AWF Group Biggest 10 FALLS Pumpkin Patch Cavalier Corp ikegps Group Comvita Horizon Energy Steel & Tube NZ Oil & Gas Sky Network TV Fletcher Building 2d 3 4 Share Code Share Code Share NZX Market Shares Closing Quotes Last 1000s 52-week Dividend Buy Sell Sale Move Sold High Low CPS t/c Yld A-C ATM a2 Milk ABA Abano Healthcare - Acurity Health Group AIR Air NZ 251 NZAX MARKET NZX Market Shares Closing Quotes Last 1000s 52-week Dividend Buy Sell Sale Move Sold High Low CPS t/c Yld AXG BFW BurgerFuel Worldwide NZDX MARKET NZX Market Bonds Coupon Rate % Maturity Date Closing Quotes Buy Sell Last Sale 1000s Sold P/E P/E Price/$100 Face Value Auckland Council Perpetual Subordinat - - This sample was taken from a 2015 edition of the New Zealand Herald and is intended as a guide only. Values will have changed. Market sections will vary in other newspapers. Please contact an Investment Adviser for more information. 1 This section displays the overall market performance and general sentiment in the market. 1a The index number 5, includes 50 of the largest and most liquid stocks listed on the NZX and mirrors the overall market sentiment. This value reflects the share price changes and the return through dividend income. It is commonly used as a benchmark to evaluate the percentage change over a particular period of time. The NZX50 was launched in 2003 from a base value of due to the NZX40 index closing at this value the previous day. 1b 1c 1d Rises and falls: The number of companies whose share price decreased or increased during the previous trading day. We can see that 31 company s share prices increased and 74 company s share prices fell. These charts display the NZX50 movement throughout the last four weeks and 12 months. Dramatic drops or rises may be the result of global events that have directly or indirectly affected the New Zealand markets. This table has additional statistics about the shares traded. These act as a 14 \ CRAIGS INVESTMENT PARTNERS

6 benchmark and are particularly helpful when comparing individual shares and portfolios. The table refers to the whole New Zealand stock exchange and is not limited to the companies within the NZX50. 3 Sharemarket Table Share Code: A unique code or symbol that represents a company. For example Air New Zealand s code is AIR and Contact Energy code is CEN. Issues traded: the number of companies traded during the previous trading day. Volume traded: the number of shares traded over the previous trading day. NZX Market Shares: The company s name. Closing Quotes - Buy: The price at which someone was prepared to purchase the share after the market closed. Value traded: the total value of shares traded the previous day in NZ dollars. This is calculated by having the total number of shares traded times the market value for that share. 2 This section highlights the Top 10 Turnover, Biggest 10 Rises, Top 10 Value and Biggest 10 Falls. Closing Quotes - Sell: The price at which someone was prepared to sell the share after the market closed. Last Sale: The price (in cents) at which a stock last traded on the previous trading day. Move: The share price movement during the previous day. For example, plus two means that the share price moved up two cents from its former share price. 2a 2b 2c 2d Top 10 Turnover: This ranks companies based on the total number of shares traded during the previous trading day. For example, the table shows that Spark had the highest turnover as it traded the most shares (5,068,293) the previous day. Biggest 10 Rises: The share price that had the highest percentage increase. Top 10 Value: The value of the total shares traded that day for the top 10 companies listed on the NZX50. Biggest 10 Falls: The share price that has had the biggest percentage decrease. 1000s sold: The total number of shares traded during the previous trading day. This number is expressed in the thousands. For example, the table shows that a2 Milk sold 104 shares the previous day (effectively 104,000 shares sold). 52-week High: The highest price paid for the share over a 52 week period (one year). 52-week Low: The lowest price paid for the share over a 52 week period (one year). CPS: This code stands for cents per share. This is also known as the dividend amount each share pays out on an annual basis. t/c (times covered): The number of times a company could have paid the dividend from its after-tax annual profits. If the t/c is 1.40, this means the dividend could have been paid 1.40 times from the company s profit. Yld (Yield): The return investors have received from dividends. The figure is re-calculated daily based on the latest share price. If the share price is $1 and the dividends paid over the past 12 months total 7 cents a share, the dividend yield is 7 per cent. P/E Ratio: A valuation ratio used to determine the value of a share. See page 12 for more information on P/E ratio. Investor Basics Investing in Shares / 15

7 4 Other Markets Note: Debt securities can either be quoted on a yield or a price basis. NZAX Market: The NZX Alternative Market (NZAX) is the marketplace for small to mediumsized, fast growing businesses seeking a safe and efficient capital raising facility. These are New Zealand companies and companies with nontraditional listed company ownership structures such as co-operatives. NZDX Market: The NZX Debt Market (NZDX) provides a list of corporate and government bonds and fixed-income securities. Coupon Rate: The annual yield paid by a fixed income security. A bond s coupon rate can be calculated by dividing the sum of the security s annual coupon payments and dividing them by the bond s par value. For example, a bond which was issued with a face value of $1,000 that pays a $25 coupon semi-annually would have a coupon rate of 5%. If all else is equal, bonds with higher coupon rates are generally more desirable for investors than those with lower coupon rates. Maturity Date: The date when the principal amount of a debt security is due to be repaid to the investor and interest payments will stop. Closing Quotes - Buy: The price at which someone was prepared to purchase the bond on close of the market. Closing Quotes - Sell: The price at which someone was prepared to sell the bond on close of the market. Last Sale: The price at which a bond or debt instrument last traded on the previous trading day. 1000s Sold: the total number of bonds or debt instruments traded during the previous trading day. Price/$100 Face Value: Face value, or par value, is commonly referred to the amount paid to a bondholder at the maturity date. However, bonds sold on the secondary market fluctuate with interest rates. For example, if interest rates are higher than the bond s coupon rate, then the bond is sold at a discount (below par). Conversely, if interest rates are lower than the bond s coupon rate, then the bond is sold at a premium (above par). In this example Auckland Council s coupon rate is 6.52%. Since the Closing Quotes are lower than the Coupon Rate this means that the face value is above par (above 100). If the Closing Quotes would have been close to the Coupon Rate the face value would be \ CRAIGS INVESTMENT PARTNERS

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