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J#37 – Stellar results from Twiga just paid for the rental of my new home by the marina. Plus more exciting developments on the Fund

I threw up my arms.

A smile broke from ear to ear.

Twiga had announced their dividends and it was a bumper year!  TZS390 per share of dividends were declared, up 34.4% from last year’s TZS290.

As most readers are aware, Twiga is the shortened name for “Twiga Cement” or the “Tanzania Portland Cement Public Company”.  I wrote about, and invested in Twiga back in early 2020.

If you had followed my 5th July 2020 recommendation and bought at the then current price of TZS1,980 you would have a whopping 18.7% net dividend yield for 2020, after deducting the 5% withholding tax.  At yesterday’s closing price of TZS2,740, the net dividend yield still comes to a juicy 13.5%.

Twiga’s annual result and dividends declared were published in the local newspapers.  A copy is reproduced below.  Their balance sheet remains strong (no debt and plenty of cash).  Their profit and loss statement is equally impressive with healthy profits that have translated to the dividends that I am soon to receive into my bank account.

But I have one problem with Twiga. It’s a pain in the neck to buy more shares because of its liquidity.  Shareholders just hold tight and don’t want to sell any, and it is an indication of the quality of the name.  There is simply too little volume to buy a substantial holding in one go.  The last 65 days averaged less than USD1,000 a day.  If you want to buy sizeable blocks, you need to get your broker to hunt around for sellers.  You’ve just got to be persistent and patient.  I have done so over the past six months and that has resulted in the large smile on my face.

The dividends to be received from Twiga will finance my year’s rental expense for my new home, plus it essentially gave me a free business class flight to Dar Es Salaam in 2019 when I met with Twiga’s management— before all these travel restriction nuisances started.

As for my new home, I have decided to ‘splash’ out by investing in a place with a great lifestyle.  My home is a condo by the marina (opposite Singapore’s Sentosa island) where long walks along the boardwalk and early morning and late-night swims overlooking the marina are possible. Here are some pictures of my new backyard. 

Investing in Twiga raises an important question some investors have had about my Double Digit Dividends Fund…

What role does liquidity play in your (the Fund’s) portfolio capital allocation?

Liquidity is a major factor in determining the size of the capital allocated to each company we invest in for our Double Digit Dividends Fund investors.  Ideally, we would like to have 50% or more of our investments with a liquidity of USD250k or more per day.  This should give us sufficient breathing time to liquidate the less-liquid names in the event we are required to raise cash. 

The Double Digit Dividends Fund has made 3 further purchases this week. The purchases are:

  • A commodity transportation company that operates in Russia and the Commonwealth of Independent States (CIS). It has trailing yield of 15.5% (net of withholding taxes);
  • A company that sells its consumer product to a world-wide market. It has a trailing yield of 9.3%; and a…
  • Company that mines metallurgical ore in the Ukraine (trailing dividend yield of 12.7%).

The Fund has invested nearly 40% of its current capital in 5 companies.  Our portfolio’s liquidity and yield positions are tabulated below. 

J37. Portfolio Allocation

The portfolio has a blended yield (net of withholding taxes) of 11.9%.  This yield is BEFORE deducting the fund’s management and performance fees.

Importantly, more than 90% of the funds invested to date have been in companies whose shares have daily liquidity of over USD1 million.  Liquidity is measured as the daily average volume over 65 trading days multiplied by the current price. 

With a generally liquid portfolio, there is room in our portfolio to invest in safe, high-yielding but low trading volume companies such as Twiga.  We also need to be careful in analysing a company’s trading volume.  For example, in the case of Twiga, does its low average liquidity of USD1,000 per day in the last 65 days indicate that it is difficult to sell its shares?  I suspect that the headline volume number is counter intuitive – it is difficult to buy its shares but easy to sell.  The lack of liquidity once you own a high-quality company such as Twiga is in the buying and not in its selling!

Andrina C of our office is busy setting up a Tanzanian custodian account with NMB Bank for the Fund.  I intend to see if we can purchase more Twiga shares on-market (if there are sellers available).  The backup plan is that I ‘transfer” to the Fund my Twiga Cement shares that were patiently accumulated over the past 18 months.  This transfer shall be done at arms-length and under the auspices (and independent review) of the Fund’s administrator, Circle Partners.  There is no rush to do this.  The next dividend announcement is in April next year.

I have constructed a dividend payment profile for the Fund’s current portfolio below.  Naturally, the payment profile will change as we add more investments to the portfolio. 

How do you read this table?  It informs you month by month the percentage of the blended 11.9% yield you will receive for each month.  For example, in June 2021 we are expecting 9% of the 11.9% in annual dividend yield to be paid.  This profile is based on the historical timing of the dividend payments made by the companies we have invested in.  Companies can, and sometimes do, change their payment dates and hence the profile is only our best forecast.

I have not provided you with the names of the 3 companies we most recently purchased, as it would be unfair to the Double Digit Dividend Fund investors who have paid for our services.  I shall however, write about one of our potential future investments in the weeks ahead.

A Message for My Children

My reasons for writing these journals were to document and pass lessons learnt in my investment journey and life to you, my children (see J#3 – Passing It Forward).  It is a model inspired by Tom Dyson, a wall-street banker, who wrote a daily journal of his thoughts on investments as he journeyed around the world with his ex-wife and children only to remarry her again.  His work about his life’s experiences and views are authentic, and that is what I like about it.  A sample of Tom’s work can be read here.

Children, it is a pure joy each time I meet you on a fortnightly basis.  We must have had about 8 such meet ups so far and I am looking forward to the next one.  Last week, I signed an agreement to rent a new home from mid-May.  This will see your mother and you move back to your home in which you (and I) have lived for over 13 years.  With my absence, you will have your old familiar bedrooms back.

My moving out from my home of over 13 years–a home I physically helped designed and build–is breaking one of my ‘mooring points’.  Mooring points give you purpose, identity and security.  The home has served me as a comfortable and safe refuge.  My religious/spiritual beliefs, friends, family and you have served as mooring points too. 

It is a strange feeling to break away from my safe refuge for 13 years.  Uncomfortable–yes; Necessary–absolutely.

Mooring points are important components to help you understand yourself so that you are not dragged by Plato’s ‘wild horses’, and when making those big decisions in life, you do so with a clear conscience.  Do read this good article.  It is about understanding yourself.  We can discuss this at a later date.     

Breaking, strengthening and building new mooring points are all part of life.  Some mooring points are, and should be, unbreakable.  They are like a flag you plant on a mountain top that stands for who you are.  As we discussed, your Dad will always be there for you.

I shall be moving to a nice place.  Somewhere far enough so it is a completely new environment, a nice change and something that I think you will enjoy when (and if) you come and visit.