Dividend - "I don't think that not paying a dividend is one of the problems in the China small caps space."
I'm not saying that the lack of a dividend is the problem per se. Rather, the problem is that small U.S. listed chinese companies, especially those that are products of an RTO or SPAC, are perceived to be low quality investments.
What do I mean by "low quality"? I mean sketchy, shady, dubious, backdoor, and so forth. In a word, dangerous.
BIDU is perceived to be "high quality", quite different from CCME, and for a number of reasons. It is the fastest growing company in all of a China, a household name. It is a product of a very high profile direct IPO onto NASDAQ. The CEO of BIDU is extremely well known globally--he was involved in the original internet explosion as a key innovator at infoseek.com, and has become a national hero in China. The company has a $25B market cap, and a large base of extremely important investors. The same can be said to a lesser degree about SINA and CTRIP. These are well known, high-profile Chinese companies, household names, definitely not "under the radar" companies like CCME.
When you invest in BIDU there are no ONP-type worries. What you have is a real company sniffed out and underwritten by Goldman Sachs, brought to market at a huge multiple, and now en route to become one of the biggest internet search companies in the world. Contrast that with ONP, a company that wanted to list, bought a shell, merged into it, traded as a penny stock for a few years, then appreciated 10 or 20 fold. Now people are claiming that it is a fraud. Which would you rather trust? LOL.
Of course, we know that CCME is a legitimate, high-quality company. But the market doesn't. And so CCME management needs to identify ways to overcome market perception and increase its credibility with investors. Unfortunately, PR's and road shows and guidance increases aren't going to be enough.
One way to up the credibility factor would be to try to cross-list on Shanghai--but I've already discussed this possibility with the management of multiple companies whose stock I own and they have each give the same consistent answer--listing on Shanghai is extremely difficult. It takes at least 2 years to hear back with a decision, and the first try is usually met with a rejection. So 4 years is your time typical frame. That's too long to wait. We need to do something now.
And so I think the best option right now--the short to medium term--is to pay a small dividend. A dividend tangibly demonstrates to investors that they are the owners and beneficiaries of CCME's success. It forces the P/E multiple to appreciate. It cushions the stock from downtrends. It f's up short selling strategies. And it does all this without costing the company anything substantial. 1/10 of net income for a 2% yield? 1/10 of net income makes absolutely zero difference for a company with 1/4 of the market cap sitting on a debt free balance sheet.
As a value investor, I think markets have lost contact with reality. People, listen to me: dividends are what this is all about. And prior to the 25 year stock mania that began in 1982, that's what the markets focused on. For a value stock, the question was "what dividend will I get now." For a growth stock, the question was "what dividend might I be able to get later on." Those are what the questions should be. Indeed, they are the only question that make any sense for an investor to ask.
Without the possibility of a future dividend, you would have to be an utter fool to get involved in the markets. All investing would be like internet-bubble investing--where everyone buys things they fully realize to be worthless because they know that others are even more stupid than they are and will pay an even higher price later on.
Now, don't get me wrong, I don't want CCME to crimp its growth by paying me 2.00 a year in dividends. But I do want CCME to show the market that their cash flows are real, and that the ultimate plan, long term, is for those cash flows to eventually build up in the bank accounts of whoever buys the stock.
The best way to do that is start now--with whatever small gesture. Pay a special dividend, or even better, make a larger commitment to pay 1/10 of net income out as a dividend going forward.
Many companies in the china small cap have done this, and it has always leads to a price premium with respect to peers. JST pays a dividend, and that's why JST can show a rapidly deteriorating business and still sell at twice the P/E of CCME! If CCME had JST's earnings trends, it would be trading at cash, about 3 dollars. I guarantee it.
TPI used to pay a dividend, and that's what kept them at a premium for so long. They stopped paying the dividend so because they want to hunt for acquisitions with the money, and you see what has happened to the share price. If they had never paid a dividend, if they had never shown the market that they believe in shareholder value, they would probably be selling at the valuation of a Renhuang or a Lotus right now.
