This article is a little longer, 3000 words, and it takes 10 minutes to read them all. I suggest you finish reading it. Because, after reading it, you can understand why I object to the decision to invest in bank stocks based on the dividend yield alone. Moreover, I will teach you a trick to increase your dividend yield by 20% and increase your stocks by 50% than others.
Last week, I wrote a short article criticizing some creators for their advice on buying bank stocks.
One stone caused a thousand waves, sparked a big discussion, and received hundreds of comments, and everything said.
Some people say I don’t know how to trade stocks. Well, I agree with this. I have been investing in institutions for many years and really don’t understand why stocks are “speculated”.
Some people say I don’t understand bank stocks. Well, we don’t look down on the bank’s returns, but if I don’t do bank stocks, it doesn’t mean I don’t understand bank stocks.
Today I will tell you how to invest in bank stocks. In order to make ordinary investors understand, I will try to put it in plain language today. Maybe some professional investors will criticize me for not understanding investment later.
has no choice, it seems that it is not that easy to get along with everything.
In my message, I said that what I objected to is just looking at the dividend yield as the basis for investment decisions for bank stocks.
I also said in my message that for people with uneven investment logic, I will all include them in black mouth and amateur investors.
To put it simply, I partially agree that I can buy bank shares now because the valuation of bank shares is too cheap.
For the sake of everyone's understanding, let's take the Agricultural Bank of China as an example.
I have said repeatedly, not talking about valuation, only talking about dividend yield, just talking about the black mouth. Why do you say so?
Agricultural Bank of China A shares 's current price-to-book ratio (PB) valuation is only 0.5 times, far lower than the average since its listing of 0.98 times, which is a serious undervaluation.
What is a 0.5x PB valuation?
Simply put, the company is worth 1.00 yuan, and the current stock price is only 0.50 yuan, while the historical average should be 0.98 yuan. Is it extremely underestimated?
However, don't think that's the lowest. Because ten years ago, the general valuation of bank stocks at that time was 1 times PB, and the valuation of 0.9 times was already very low. No one could have thought that it is 0.5 times PB now, so no one knows what PB will be next month, next year, and in ten years.
But what we can be sure of is that the lower the valuation, the safer the stock price, because the valuation can reach 0.4 times or 0.3 times. As long as the company does not go bankrupt, it will not fall to 0 times.
Fortunately, Agricultural Bank of China is a large state-owned bank and cannot go bankrupt, so the PB valuation will not fall infinitely and will rebound sooner or later. According to the law of mean regression, it will definitely approach 0.98 times, and it may even be higher than 0.98 times one day. For example, the valuation of Agricultural Bank of China has reached 1.91 times in history, which is nearly 3 times higher than it is now.
knows the valuation, and we can continue now.
At present, the valuation of Agricultural Bank of China is 0.5 times, and the dividend of the latest dividend was 0.2068 yuan. Based on the share price of 2.68 yuan on December 31, 2021, the dividend yield is 7.71%, which is very high, isn’t it?
So many creators say that investing in the Agricultural Bank of China will receive a dividend of 6% to 7% every year, which is very cost-effective.
Their assumption is to buy stocks after getting a 7% dividend every year. Over time, the number of stocks will increase and the dividends will be increased.
So, some investors guided me to say that as long as the dividend yield is higher than 6%, buy stocks; sell stocks if the dividend yield is lower than 5%, because the dividend yield is too low.
But this is exactly wrong. Why? There is a fatal flaw in .
Under normal circumstances, assume that a bank stock is 3 yuan, with a valuation of 1 times PB, and the dividend is 0.21 yuan, which means the dividend yield is 7%. If the stock price rises to 4.2 yuan, the stock price rises by 40%, and the dividend yield drops to 5%, the valuation at this time may be as high as 1.4 times PB, and there may be an overvalued situation, so selling stocks may be the right choice. Especially if the stock price is extremely overvalued, the correct choice is to sell the stock temporarily and wait until it returns to a reasonable valuation level before buying.
However, what is the current state of Agricultural Bank of China? The PB of Agricultural Bank of China is only 0.5 times. Even if it rises by 40%, the PB is actually only about 0.7 times. There is still 40% room to go from the 12-year average of 0.98. Even if it rises to 0.98 times, its valuation has just been restored to the average level, and it should not be chosen to sell immediately.
OK. After we discuss the problems of rising stock prices, repairing valuations, and falling dividend yields, let’s see what happens if the stock price continues to fall?
If a bank stock is currently at 3 yuan, the investor holds 100,000 shares, with a dividend of 0.21 yuan per share, a valuation of 1.0 times PB, the stock price falls by 20%, and the stock price becomes 2.4 yuan, is it acceptable for investors?
I believe that for many investors, the stock price fell by 0.60 yuan within a few days or months. Not only is the dividend of 21,000 yuan gone, but the book loss of 40,000 yuan per share is also a floating loss of 40,000 yuan per share. Isn’t this annoying? What will happen at this time?
I believe that many investors will be unable to hold back and give up the idea of long-term investment, believing that dividends are a scam, and finally cut their losses and get out. In fact, many people online complain that the stock price fell after dividends, thinking that dividends are meaningless, which is why I am most worried that investors will not be able to persevere. In fact, I just wrote an article not long ago specifically explaining the relationship between stock dividends and stock declines.
Secondly, putting aside valuation, looking at the value of bank stocks just from the dividend yield, you will also fall into a fantasy, that is, in the future, you can always get dividends at a fixed dividend rate, and then use a fixed dividend to continue to buy stocks at the current stock price.
Last week I received a calculation from a reader. One of the mistakes in his calculations is to assume that the business of the Agricultural Bank of China has been growing and the dividends are also growing, but the stock price has remained unchanged at the current price. Therefore, more and more stocks are bought with dividends, and in the end, you can get very good returns by relying on dividends alone. The premise of the assumption of
is serious flawed, that is, the company's performance is growing and the dividends continue to rise. So how can the stock price remain unchanged at around 3 yuan for more than ten years? In other words, if the dividends of 0.4 yuan, 0.5 yuan or even higher in the future, how can the stock price remain at 3 yuan for a long time?
Third, if investors can strengthen their confidence and plan to buy stocks from the four major banks, what else can I teach you? There is really.
For a long time, a large number of stocks listed in Hong Kong have been in most cases A shares have higher prices than H shares, that is, the premium between AH. Therefore, what investors need to do is to check the price difference between A-shares and H-shares of the four major banks, and combine the valuation and dividend yield, and buy H-shares of the four major banks listed in Hong Kong.
For example, Agricultural Bank of China, the current A-share price is 3.02 yuan, and the H-share price is HK$2.93, which is converted into RMB 2.50 yuan. A-shares are 21% more expensive than H-shares. Then every year, investors receive the same dividends. When they turn over and invest, the price of buying stocks is nearly 20%. The valuation of Hong Kong stock is only 0.39 times, will it fall below 0.3 times? I don’t know, but I know that H shares are cheaper than A shares. Why not buy H shares but A shares?
Of course, here we still need to remind investors of the long-term exchange rate risk . Looking ahead, the exchange rate of RMB and Hong Kong dollar should remain basically stable.
Imagine that the Hong Kong stock price is cheaper, and the dividends received are the same as A-shares, and H-shares are 20% cheaper than A-shares. Wouldn’t you get more dividends every year when investing in Hong Kong stocks and buy more cheap stocks? Assuming that A-shares are 20% more expensive than H-shares in the long run, then at the end of the 18th year, investors can get 50% more stocks than investing in A-shares.
Please pay attention to the tax policies of A-shares and Hong Kong stocks.
However, I suspect that if everyone does this, the discount between Hong Kong stocks and A-shares will soon be less.
We said, you need to know the investment logic in order to get things right, and then your success can be constantly copied. If you don’t know the investment logic, your success is just a coincidence, and one coincidence will prompt you to take risks and eventually lose money by your luck.
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I am [Investment Facts and Logic]. Next time, let’s talk about whether bank stocks can make price difference? When to sell bank stocks and when to buy bank stocks, you can make your bank stocks more.
