High Dividend Shares Investment Decision in Indonesia Stock Exchange: Bottom-Up Approach

Abstract

Investing in the capital market is high risk and return. Hence, investors need to use the right strategy by using the bottom line, primarily to determine the intrinsic value of shares. The problem is currently around 85-90% of capital market players in Indonesia experiencing failure because of using the strategy as a trader and not as an investor. Besides that, most research limited the intrinsic value to case studies. The sample of this study was 64 companies (11% of the total listed companies will be sampling), dividing the dividends in 2014 -2018 that never suffer a loss. Meanwhile, the method used in determining the intrinsic value of shares is the P/E method. The results show that 46 companies have undervalued shares, but only five companies are worth buying because the Margin of Safety (MOS) is above 30% and ROE, EPS growth for five years are still positive. Meanwhile, 18 other companies are overvalued, or the intrinsic value is smaller than the stock price. Furthermore, both undervalued and overvalued in returns until the end of December 2019, it turns out that undervalued shares with MOS> 30% provide higher returns than undervalued <30% and those that are overvalued. Thus the calculation of intrinsic value by the P/E ratio method can be said to be accurate, and previous studies have never evaluated this before.