SINGAPORE Maintains its Lead as DIVIDEND CAPITAL IN ASIA





Yang Sook Chin
03.09.2019



Singapore maintains its lead as the key component of Asia Pacific’s Number 2 strongest index, FTSE Value-Stocks ASEAN Index, among the 40 thematic indices published by the FTSE group for the past 3 years. Singapore Exchange (“SGX”) provides an attractive option for income investors with 10-year UST note yield below 2%.


Singapore more than doubles its weight in the FTSE All World High Dividend Index at 0.94% compared to FTSE All World Index at 0.42%.


Mr Geoff Howard, Vice President, Market Strategist, SGX, affirmed the strong performance of the Singapore stocks in delivering the dividend yield to the investors, particular the banking stocks and the manufacturing stocks.





Mr Geoff Howard, SGX, shared on the high dividend stock picks in 1H2019



Bank Stocks Outperforms in Dividend Yield


Among the highest dividend yield remains the bank stocks, namely UOB, OCBC and DBS. DBS, OCBC and UOB are amongst the top ten constituents of the FTSE Developed Asia Pacific ex-Japan Sustainable Yield Index. Constituents meet financial and operating strength criteria, with emphasis on strong balance sheets and ability to generate cash flow.


The three banks all maintain an indicative dividend yield above 4.0%, currently averaging 4.5%, with DBS distributing dividends on a quarterly basis, and OCBC and UOB distributing dividends on a semi-annual basis.





The three banks averaged 9% YoY net profit growth 1HFY19, following average net profit growth of 19% in FY18. Average ROE was at 12.5% in 1HFY19 with average NIM at 1.82%. The three banks also averaged 7.8% annualised total returns over the past five years.


DBS Group Holdings ("DBS"), Oversea-Chinese Banking Corp ("OCBC") and United Overseas Bank ("UOB") are amongst the ten largest weights of a number of indices, including the Straits Times Index (“STI”), FTSE ASEAN All-Share Index and FTSE Developed Asia Pacific ex Japan Sustainable Yield Index.


Together the three stocks average an indicative dividend yield of 4.5%, providing an important cornerstone for Singapore’s comparatively high yields as discussed in the recent. The average indicative dividend yield of the three banks at the end of each month has remained above 4.0% since the end of October 2018.


Scale & Diversity of the Manufacturing Stocks Base


The other industry sector provides stable dividend yield is the manufacturing stocks. The spread of the diversity of the top 30 active manufacturers is well proven by recent % in total returns, with bright sparks in Frencken Group (76%), Hi-P International (61.7%) and Sunpower Group (48.3%). Close to half of the 30 manufacturers are ranked as the top 5 performers of the 30 active stocks in the past 3 years.





Source: SGX (For more information, please refer to SGX My Gateway Report here)



VERVE - WISDOM


Dividend plays are a much-desired stock investment strategy, which would allow retail investors to earn a steady stream of passive income.


However, any dividend gains can easily be eroded by the share price fluctuation or decline. In addition, dividend payouts are usually subject to management’s judgement and may fluctuate on a quarter-by-quarter basis.


Verve’s house recommendation is the key is to mitigate such downside risk in share price fluctuation is through the identification of a value stock portfolio, typically the blue-chip or stocks with a strong dividend policy.


Investors have to be mindful that dividends are generally only paid out when the companies have reached their profit performance targets or met the dividend policies set. Hence, your dividend investment strategy has to be prudently centred on the past dividend payout track record as well as the current revenue performance of the company.



Most Active Manufacturers by Turnover in 1H19





Data Source: SGX



Top 10 Dividend Play in 2018 and 1H2019





Data Source: SGX



Notwithstanding this, we opine that high yields may not always imply good dividend stocks. For example, high yields could be because of a marked sell-down in the company’s shares.


Verve’s recommendation to this would be to the investors to inspect the dividend play’s overall business model, strategy as well as financials holistically. Clearly, three important questions need to be addressed:


  1. Cashflows: where are they coming from and where are they headed? Are there any capex forecasts?
  2. Industry Prospects: Is the business in a sunset or sunrise industry? How foreseeable are its revenues going into the medium and long term?
  3. Dividend Payout Track Record: How has the company’s dividend payout track record been? Has management rewarded shareholders regularly through dividends?


There may be a myriad of other questions that need to be answered during an investment evaluation process, but Verve believes that positive answer to the above will already set the investor on the right path to stable, incremental passive income streams through DIVIDENDS!