When it comes to dividend investing, Singapore is one of the most popular financial markets for investors. Besides having ample options to select dividend stocks that payout consistently high dividends, Singapore’s tax laws are extremely friendly for dividend investors. For example, when investing in listed companies on the Singapore Exchange (SGX), dividend income is generally tax-exempted. This makes companies that pay out high dividends as attractive dividend stocks to invest in.
Investing In Dividend Stocks Beyond Just Property-Related Companies
Real estate investment trusts (REITs) and property trusts are usually the most popular investments for income-seeking investors. These companies will usually pay at least 90% of their taxable income as dividends to avoid paying corporate income tax. That’s why you can easily find many REITs and property trusts that pay a dividend yield of more than 5% per annum.
However, for income-seeking investors that want to generate passive income beyond just properties, there are also non-property-related stocks that we can invest in.
In this week’s edition of 4 Stocks This Week, we look at some established companies in Singapore that we can consider investing in as dividend stocks.
Sheng Siong (SGX: OV8)
Sheng Siong (SGX: OV8) is a household name that owns and operates supermarkets across Singapore. The company prides itself on being well-situated in Singapore’s heartlands to offer convenient “wet and dry” shopping options for its customers.
Due to the COVID-19 pandemic, demand for essential items like food and cleaning products has increased, leading to more people shopping at supermarkets, such as the ones operated by Sheng Siong.
For FY2020, Sheng Siong’s revenue was at $1.39 billion, up about 40% compared to FY2019. Net profit was at $139.1 million, up about 83% compared to the year before. With an earnings-per-share (EPS) of 9.22 cents, the company could pay out total dividends of 6.5 cents per share for FY2020.
Based on its current share price of $1.56, the dividend yield for Sheng Siong is at about 4.1%. The 5-year average for dividend yield for Sheng Siong is about 3.5%, so the current dividend yield is higher now compared to the past, likely because investors are aware that the FY2020 performance of Sheng Siong could be an outlier due to the increase in demand for essentials goods.
That said, it’s worth noting that the EPS for Sheng Siong has been increasing over the past 5 years, even before the pandemic. This is vital when we look at dividend stocks as an increasing EPS suggests that the company can confidently sustain, or even increase its dividend payout to shareholders.
Source: Sheng Siong
UOB (SGX: U11)
Despite the global pandemic that we experienced in 2020, all three of Singapore’s local banks – DBS, OCBC & UOB – have remained resilient over the past 15 months. This is critical for Singapore’s economy as we pride ourselves on being a financial hub for the world. Our three local banks are often cited as being among the world’s best and safest banks.
One component of investing in our three local banks that investors sometimes overlook is that they can be good dividend stocks as well. While it’s not as high compared to REITs, they provide stable income and are backed with robust strong cash flow and profitability.
In this regard, UOB’s (SGX: U11) dividend yield is currently slightly higher at about 3.0% as compared to DBS (about 2.4%) and OCBC (about 2.6%). It’s also worth noting that because MAS has called on Singapore banks to cap their total dividends at 60% of the FY2019 payout, all three local banks have reduced their dividend payouts for FY2020, even if they could have continued paying the same amount.
For UOB, the total dividend paid in FY2020 was 78 cents per share, which was exactly 60% compared to the $1.30 it paid out in FY2019. This is a payout ratio of 45% for the bank.
From the table above, we can see that from 2016 to 2019, UOB dividend payouts have been increasing each year while its payout ratio remained at 50%. Based on its current share price of $25.84, UOB is trading at about a 3% dividend yield.
Singtel (SGX: Z74)
One blue-chip company that has not done well in 2020 is Singtel (SGX: Z74). Once the biggest company in Singapore before the local banks overtook it, Singtel has faced stiff competition in recent years, leading to lower profitability for the company.
Over the past three years, underlying net profit (defined as net profit before exceptional items) has fallen from $3.59 billion (2018) to $2.45 billion (2020). Due to the impairment of assets, net profit after tax is even worse, falling from $5.47 billion in 2018 to $1.07 billion in 2020.
Singtel may or may not be attractive as a dividend stock, depending on how we view it as investors. While the group has a policy of paying between 60% – 80% of its underlying net profit as dividends, underlying net profits (and thus, dividends) have been declining in recent years.
In 2018, the underlying net profit was 22.01 cents per share. In 2020, it was 15.05 cents. In 2021, was 10.56 cents per share.
Dividend per share has also dropped from 17.5 cents in 2018, to 12.25 cents in 2020. For 2021, this has fallen further to 7.5 cents, which represents 71% of underlying profit.
Based on its current share price of $2.31, Singtel is currently trading at a dividend yield of about 3.2%
It’s clear that Singtel is a company that is willing to pay out a good percentage of its underlying net profit. The question is, would SingTel be able to reverse its declining EPS moving forward?
SGX (SGX: S68)
Despite the pandemic, financial markets around the world have seen more activities than ever among retail investors, and the SGX is no exception. For FY2020, SGX achieves a record revenue of $1.05 billion, the highest since the company was first listed. In line with revenue, its net profit also increased to $472 million, up about 20% compared to FY2019.
With an EPS of 44.1 cents for FY2020 (FY2019 was 36.5 cents), SGX announced that it would be increasing its dividends to 8 cents per quarter, or 32 cents per annum moving forward. This is up from 7.5 cents. Given its current share price of $11, this translates to a dividend yield of about 2.9% per annum, which may be attractive for investors that are looking for dividend stocks whose earnings can also grow.
Read Also: Guide To Dividend Investing In Singapore
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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.