This article is written and contributed by a regular DollarsAndSense reader who has been investing since his undergraduate days and is a Chartered Accountant with one of the ‘Big Four’ accounting firms.All contributed articles on DollarsAndSense are the independent opinion of the writer and do not necessarily represent the views of DollarsAndSense. Any opinion expressed in this article are that of the author and should not be taken as investment advice.
Globally, the attitude towards equities have turned pessimistic over concerns of a US-China trade war and rate hikes. Yet for many – myself included – this stock market correction has presented a good opportunity to acquire quality stocks at fairly attractive valuations.
The selection of such stocks would be dependent largely on one’s financial objectives. For a young working adult, I prefer to take a long-term view and invest in blue-chip stocks with a stable business model, reasonable valuation levels and consistent dividend payouts of at least 4%.
While there is no hard and fast rule, the criteria that I would use to select stocks are based on the following: strong balance sheet and free cash flow generated from its core business model. Based on my criteria, here are some stocks (in no particular order) I am looking at.
# 1 Parkway Life REIT (SGX)
Parkway Life REIT owns a portfolio of healthcare assets across Asia, which it leases to medical operators including hospitals and private clinics. The portfolio is allocated mainly in Singapore (61%) and Japan (39%), both of which are countries that have an aging population and a strong medical tourism base.
Even with gearing on the higher end of the spectrum at close to 40%, the REIT has close to full occupancy with most of the leases being long-term in nature and hence is unlikely to be affected by earnings fluctuations. At a share price of $2.63 (as at 30thOctober), this provides a stable dividend yield of around 4%.
# 2 Singapore Telecommunications Limited (SGX)
While share prices in Singaporean telecommunication companies have fallen largely due to increasing competition, I believe that Singtel will be less affected than its competitors. Besides having a diversified revenue stream from different locations, it has other business such as digital marketing and cybersecurity.
The balance sheet of Singtel is also strong, with consecutive years of stable profits, free cash flows, year-on-year growth in terms of assets and shareholder funds, and a low gearing of 24.9%. Trading at a 5-year low of $3.11 (as at 30th Oct), Singtel provides an attractive dividend yield of 5.6% and a potentially large capital appreciation.
# 3 Keppel Infrastructure Trust (SGX)
Keppel is a Business Trust which owns a diversified portfolio of infrastructure assets (such as waste-to-energy and desalination plants) and counts various Singapore government agencies as its main clients. Besides lower credit risks, these contracts are long-term and will not expire until the early 2030s.
Although the gearing level is a little high at 40%, the nature of the business model presents a stable cash flows and hence I would not be too concerned as an investor. Furthermore, the yields at the current share price of $0.45 (at 30th Oct) stand at a very attractive 8%.
# 4 Malayan Banking Berhad (Bursa Malaysia)
Malayan Banking Berhad (Bursa Malaysia) is more commonly known as Maybank. Although there are quite a few banks shares that you can buy, what attracts me to Maybank is that the dividend yield is above the industry standards at 6% (based on a share price of RM9.25 at 30 Oct). Additionally, Maybank has taken care to ensure prudence in cost and asset quality.
In recent years, it has also registered growth in all of its key markets, namely Malaysia, Indonesia and Singapore. The bank has also seen top-line growth while maintaining generous dividend payouts. To me, these outweigh the currency risks of investing in Maybank.
# 5 iShares MSCI Hong Kong ETF (NYSE)
I am not a fan of the STI ETF because the STI Index appears to have a strong resistance at 3,500 and hence has limited upside potential (for me at least). In my view, the iShares MSCI Hong Kong ETF provides a good alternative as it works using a similar principle as the STI EFT except that is invests in HKSE stocks.
At a price of $21.53 (as at 30th Oct), the share is down by 15% since the start of the year and this represents a great value to enter given its trailing yield of 4.6% and a track record of strong returns over the past decade. Particular to ETFs, the expense ratio is also low at 0.49%.
As you can probably infer from my choice of stocks, I prefer investing in counters which are stable with a proven track record, especially in such times of turbulence caused by the trade war. Not all investors may take the same view and these shares could potentially sink lower. Nonetheless, I can take some comfort in the fact that all are trading below their peaks and provide some form of passive income.