Aram Durphy

Aram Durphy
Contributor since: 2012
Company: Liberty Hill Investing, LLC
Historically, NTE has had a healthy dividend (five year average dividend yield of 9.1%), but with the current troubles management has cut the dividend to 1%. Management likes a healthy dividend, so if cash flow picks back up, I would expect the dividend to move back toward historical levels. That, however, would be a contingent event that I wouldn't factor into the investment right now. I would take the 1% dividend at face value and use that number when deciding whether or not to buy.
Thank you for your comments. As I mentioned, I am aware that growth has slowed at NTE. It's always tough to analogize American investing standards to Chinese companies listed on American markets. They rarely perform as one would expect a similar U.S. company to perform, because many investors are skeptical about the financials. This article is not meant to be in depth, it's just a snapshot of companies with possible deep value and fundamental strength. Of course, I didn't even mention NTE's dividend situation, which might be a point of decision for many investors in and of itself. I do think NTE growth will recover in the long-term, but it always pays to be conservative, which is why I targeted a 10% growth rate in the valuation. The 20% rate was modest compared to past growth. Due to the balance sheet, even at 0% growth, there is a wide margin of safety.
Thank you for the feedback. Atmel's price has risen quite a bit recently, off those all-time lows, but I believe it's still an excellent value.
Yes, the discount rate can be more art than science. You can use the weighted average cost of capital formula, but even that isn't as exact as one would like. That's why I like a conservative rate, such as 12% for these companies. We're looking for a margin of safety, so better to play it safe with the analysis. And yes, whenever one selects a rate, it will compound and have a logarithmic effect on the calculation.
I appreciate the comments on whether DCF is a good predictor of growth. Inherent in my approach to BIG and WDC is the concept that we can't simply take the last five year growth rate, and expect FCF growth at the same rate. Especially, if growth is all over the place. That's why I give several FCF growth scenarios for the future. Projecting future growth is independent of the DCF analysis, but the DCF helps with your value analysis once you decide on growth.
I would be interested to hear your objections. It's certainly not the only way to value a company, but I've found DCF useful.
BillySundance puts it well. Dividends are great if a company doesn't have better things to do with its cash. But I don't ever view dividends as necessary, especially with growing small-caps.