EPF Dividend Rate for 2017 - Our Prediction!

It is that time of the year again where EPF will be announcing the Dividend Rate for 2017. The question is whether the Dividend Rate for 2017 will be higher than 2016's rate of 5.7% or lower? Based on a survey I am currently running on IME's Facebook page, it looks like a large majority of us Malaysians are expecting a better dividend rate for 2017!

85% says that 2017's Dividend Rate will be higher than 5.7%!

With the majority generally in agreement that 2017 will have a higher dividend rate, let us further verify this by taking a quick glance at the performance of EPF for Q1, Q2 and Q3 of 2017 versus the historical performance of 2014, 2015 and 2016.

EPF Historical Performance 2014, 2015, 2016 and 2017

As you can see from the table above, EPF performed extremely well for Q1, Q2 and Q3 of 2017 with record breaking investment income in the double digits region. These figures from Q1 to Q3 2017 alone are indicating that the 2017's Dividend Rate would  most likely be on the very high side.

So how much would the dividend rate be then?

IME's PREDICTION

Before I start, let me declare upfront that the prediction is statistically driven and is done purely for fun. I begin by first by establishing a few key information first.

Step 1 : Predicted Gross Investment Income for 2017

First I would need to predict the total investment income for 2017. To do so, I will need to find the (%) growth of historical Gross Investment Income of EPF and obtain that average (%) growth value as shown in the table below:

Average % Growth of Gross Investment Income = 11.67%

The Average (%) Growth of the Gross Investment Income between period 2010 to 2016 is +11.67%. Using that basis I am estimating that the 2017's Gross Investment Income would grow by 11.67% on top of the RM46.56 billion achieved in 2016.

Predicted 2017 Gross Investment Income

= Gross Investment Income for 2016 X Average (%) Growth

= RM46.56 billion X 111.67%

= RM51.99 billion

Step 2 : Predicted Income Distribution for 2017

The next important prediction I need to make is the Predicted Income Distribution for 2017. In order to do so, I will need to first find the average ratio between Income Distributed versus Gross Investment Income as shown in the table below:

Ratio Income Distributed vs Gross Investment Income

Based on historical data between 2010 to 2016, the average ratio is 0.882. That means based on the RM51.99 billion Gross Investment Income predicted for 2017, I am able to determine the Predicted Income Distribution for 2017 as shown below:

Predicted Income Distribution for 2017

= Predicted 2017 Gross Investment Income X Average Ratio 

= RM 51.99 billion X 0.882

= RM 45.855 billion

Step 3 : Predicted Amount Needed to Pay Each 1% Dividend Rate 

This approach is similar to Step 1 whereby I would need to determine the Average (%) Growth of the Amount Needed to Pay Each 1% Dividend Rate. Using historical data, the Average (%) Growth is determined as shown in the table below:

Average (%) Growth of the Amount Needed to Pay Each 1% Dividend Rate

Based on the table above, the Average (%) Growth is determined to be +9.53%. That would mean the Predicted Amount Needed to Pay Each 1% Dividend Rate for 2017 would be RM 7.125 billion.

Predicted Amount Needed to Pay Each 1% Dividend Rate for 2017

= Amount Needed to Pay Each 1% Dividend Rate for 2016 X Average (%) Growth

= RM 6.905 billion X 109.53%

= RM 7.125 billion

Step 4 : Putting it all together

Now all I have to do is to use these two predicted values as listed below:

• Predicted Income Distribution for 2017 = RM 45.855 billion
• Predicted Amount Needed to Pay Each 1% Dividend Rate for 2017 = RM 7.125 billion

By knowing the Predicted Income Distribution for 2017 and the predicted amount needed to pay each 1% dividend for 2017, I am now able calculate the predicted Dividend Rate for 2017 via the formula below:

Predicted Dividend Rate for 2017

= Predicted Income Distribution for 2017 / Predicted Amount Needed to Pay Each 1% Dividend Rate for 2017

= RM 45.855 billion / RM 7.125 billion per 1%

= 6.43%

SUMMARY

So there you have it, 6.43% is my prediction on the potential dividend rate for 2017. How close will this prediction versus the actual dividend rate? We will just have to wait for the official announcement somewhere near mid February 2018!

Cheers and Happy Investing to all of you!