At the start of the year, I posted my first company analysis on this blog, which I have deemed as high quality and undervalued. With a financial year ended 31 July 2015, TTJ Holdings released their full year financial statement and announced their proposed dividend recently on 23 September 2015.
Shares of TTJ spiked from an immobile range of $0.32~$0.34 for the 1st 3/4 of the year, to a closing high of $0.385 on 28 Sept 2015. One of the most likely reason for the spike was because of the proposed dividend of $0.08, which represents a yield of 21% based on the current price of $0.37, or 24% if you have invested at the price of $0.33. This means that for every $10,000 that you have invested in TTJ, you would be getting up to more than $2,400 worth of dividend come 1st December 2015.
Not that I am showing off, but I believe in celebrating every little success just as how I have been very candid with my mistakes. In all, I have purchased close to 60,000 shares of TTJ in 2 separate purchases. My average cost was approximately $0.335 per share after commission charges. If I liquidate all of my shareholdings at the current price, I will net a gain of around $2,000 or 10% return on investment (ROI). However, I intend to continue holding these shares and earn the 24% ROI when the dividend is paid, translating to approximately $4.8k for a years of not doing any work.
The reason why I am holding on to this share is written in my article, where I indicated that the company is severely undervalued, with an intrinsic value of $0.51. Although the reported net income is lower than my forecast, its 2015 annual report still indicates that the company has strong sustainable profit and good fundamentals.
I especially like how this company operates on virtually no debt. The high dividend payout is of no surprise considering that it is sitting on a large pile of cash. Its cash and cash equivalent represents 55% of its total assets or 65% of equity. Capex this year was half of last year so I believe the company is scaling back to observe how the economy will play out. It has also liquidated more financial assets than last year without purchasing much this year. A prudent company returns cash to investors if it is unable to generate higher returns than the market. This further strengthens my confidence in TTJ's management in directing the company through this uncertainty.
As they say, in an uncertain economic environment, cash is king! Hence, I believe TTJ will be able to utilize its large cash reserves to invest in other undervalued assets or participate in many high return projects that its competitors may not be to do so without borrowing more money.
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