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4 Stocks This Week (Sustainable Dividends) [31 July 2020] SGX; Nikko AM STI ETF; Sheng Siong; DBS/OCBC/UOB

Paying sustainable dividends is only possible when companies themselves are making sustainable profits.


With July 2020 coming to an end, it’s been more than six months since the first COVID-19 case was confirmed in Singapore. Since then, the COVID-19 pandemic has disrupted the world in a way no one could have anticipated. Global travel has come to a standstill and most countries around the world (including Singapore) had to implement some form of lock-down and border controls in an attempt to stop the spread of the disease.

Around the world, more than 17 million people have been confirmed as infected with COVID-19 with the United States (4.64 million), Brazil (2.67 million) and India (1.64 million) crossing the 1 million mark. More than 670,000 people have died because of COVID-19.

As an open economy reliant on global trades, Singapore has been hard hit. Advanced estimates from the Ministry of Trade showed that on a quarter-on-quarter basis seasonally-adjusted basis, GDP has shrunk by a record 41.2%. The Ministry of Manpower also announced earlier this week that unemployment and retrenchment rates have increased between April to June, with the unemployment rate for Singaporeans currently standing at 4.0%.

Not surprisingly, stocks on the Singapore Exchange have been impacted. The Straits Times Index (STI) has fallen by about 22% since the start of the year.

Dividends have always been an important consideration for many Singapore investors when investing in local stocks. In this edition of 4 Stocks This Week, we look at the dividend payout of some of Singapore’s most prominent companies and recent announcements that they have made.

Singapore Exchange Limited (SGX: S68)

Besides being the stock market of Singapore, the Singapore Exchange (SGX) is also a public-listed company within the Singapore Exchange that you can invest in.

Amid the challenging year for most companies around the world, the SGX announced an impressive set of results for FY2020, as it saw both its revenue (S$1.05 billion, up 16% from a year ago) and net profit (S$472 million, up 21% from a year ago) increasing. Earning per share is at an impressive 44.1 cent for FY2020, an increase of 21% from FY2019.

With this impressive set of results, the SGX is also announcing a higher dividend payout of 8.0 cents per share for 4Q2020. This is an increase from the usual 7.5 cents it pays per quarter. Investors can expect quarterly dividends of 8.0 cents per share, which adds to 32.0 cents per annum, an increase of about 7% from the current level.

Based on its current share price of 8.17 (as of 30 July 2020), the SGX is trading at a dividend yield of about 3.9% and a price-to-earnings ratio of 18.5. Share prices are down by about 7.8% since the start of the year.

Nikko AM STI ETF (SGX: G3B)

One of two ETFs in Singapore that tracks the STI, the Nikko AM STI ETF is a proxy to how well the entire Singapore stock market performs.

Similar to the STI, the Nikko AM STI ETF is down about 22% since the start of the year and is currently trading at 2.58. According to an SGX report, dividend yield for the ETF is currently at 4.8%, which is slightly higher than usual because of the decline in share price. That said, dividend yield may be lower if companies that make up the STI start to reduce their dividend payouts for future periods.

Read Also: SPDR STI ETF VS Nikko AM Singapore STI ETF: What’s The Difference Between These 2 Straits Times Index ETFs Listed On The SGX?

DBS (SGX: D05); OCBC (SGX: O39) & UOB (U11)

We will cheat and make an exception for this article by grouping all three local banks – DBS, OCBC and UOB, into a single ‘stock’ for the article.

On 29 July 2020, the Monetary Authority of Singapore (MAS) called on local banks to cap their dividends at 60% of FY2019, and to offer shareholders the option of receiving the dividends to be paid for FY2020 in scrip (i.e. shares) instead of cash.

According to MAS, “while the Local Banks’ capital positions are strong, the dividend restrictions are a pre-emptive measure to bolster their resilience and capacity to support lending to businesses and individuals through an uncertain period ahead for our economy.”

In other words, MAS wants the banks to hold on to more cash so that the banks can better support individuals and businesses during this difficult period. MAS also mentioned that the three local banks – DBS, OCBC & UOB, have all agreed.

Based on their FY2019 dividend, here’s how much the banks would likely pay out in dividends for FY2020.

  FY2019 Dividend FY2020 with 60% cap Have Paid 1Q2020
DBS $1.23 $0.738 Yes* ($0.33)
OCBC $0.53 $0.318 No
UOB $1.30 (including Special Dividend which has been in place since 2017) $0.78 (including Special Dividend which has been in place since 2017) No

* For banks that have paid their first quarter dividend (i.e. DBS), the dividend restrictions and offering of dividends in scrip will be extended by another quarter until 1Q2021. The 60% cap will apply to the revised period, but would still be reference FY2019.

Not surprisingly, all three local banks saw their share prices. DBS share price dropped from 20.44 (29 July) to 19.77 (30 July) after the announcement, OCBC dropped from 8.92 to 8.56 and UOB dropped from 20.03 to 19.39.

Sheng Siong (SGX: OV8)

Sheng Siong has done remarkably well in 2020, due to the increase in its sales as people in Singapore increase their spending on grocery items for essential daily use when they stay at home more as compared to dining out. Its share price has increased by 35%, from 1.26 at the start of the year to 1.70 as of 30 July 2020.

In addition to its capital appreciation, investors would be glad to know that Sheng Siong has announced an interim cash dividend of 3.5 cents per share, double the 1.75 cents paid out last year for the same period. This comes off the back of the company seeing its net profit more than double in the second quarter, as it records a profit of $46.2 million, as compared to $18.4 million a year ago.

Whether the company continues with a similar 3.5 cents per share payout for the 2H2020 is anyone’s guess. If it does, this would make Sheng Siong dividend yield at about 4.1% based on current share price.

It’s worth noting that Sheng Siong has a strategy focusing on opening supermarkets at locations within the heartlands. This is a strategy that, in our view, is favourable in 2020 as people prefer doing grocery shopping at supermarkets that are nearer to their homes.

Read Also: 10 Companies (Worth $1 billion or more) That Beat The STI In The First Half Of 2020

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4 Stocks This Week is not a recommendation from us to buy or sell any of these stocks. For investors who are keen to find out more, you should continue researching about them before making your investment decisions.