If your resolution for 2019 is to start investing, I must say you have made the right decision.
You see, investing is not only for the select few. Everyone should invest to at least beat inflation, which averages 2.6% per year in Singapore.
Investing doesn’t mean leaving our money in the bank. Banks give us measly returns of around 0.05%. Therefore, money left in the bank is getting eroded by the inflation monster.
In an earlier article here, I had outlined three easy steps for new investors to navigate the stock market in 2019. The last step was to buy the right stock, where I recommended starting off by buying an exchange-traded fund (ETF).
However, if the new investor wants to go one step further, he or she can consider buying Singapore Exchange Limited (SGX: S68), a blue-chip share. Blue-chips are part of the Straits Times Index (SGX: ^STI), Singapore’s stock market benchmark, and are generally considered safe companies.
Why Singapore Exchange?
Singapore Exchange (SGX) is the only stock market operator in Singapore, and it provides listing, trading, clearing, settlement, depository and data services. If you want to buy any stock in Singapore, you have to go through SGX.
It would be near-impossible for anyone to try to penetrate SGX’s stronghold, in my opinion. This characteristic gives the company a wide economic moat.
Due to its position, SGX has an enviable net profit margin and return on equity (ROE). For its financial year ended 30 June 2018, it clocked in a net profit margin of 42.4% and an ROE of 34.1%. Both the figures are higher than what most companies in Singapore’s stock market can achieve.
Show me the money
Historically, SGX has shown a stable track record of growth.
From FY2014 (financial year ended 30 June 2014) to FY2018, the company’s revenue grew 5.4% per annum, from S$686 million to S$845 million. Meanwhile, its net profit attributable to shareholders rose from S$320 million to S$363 million during the same period, increasing by 3.2% per year.
Together with the higher profitability, SGX’s dividend has climbed from S$0.28 per share in FY2014 to S$0.30 per share in FY2018, which translates to an annual growth rate of 1.7%.
The company also possesses a rock-solid balance sheet. As of its latest financial quarter, which ended on 30 September 2018, it had S$840 million in cash hoard with no debt.
SGX has plenty of ways to grow in the years ahead. In its FY2018 results announcement, it mentioned:
“Cementing our position as a multi-asset exchange remains key to our strategy, together with growing our international presence and widening our partnerships and networks. The introduction of new equities products and services, enhancement of SGX Bond Pro, expansion of our steel value chain and development of new data business capabilities, will all play a part towards fulfilling this strategy in FY2019.
We also see an opportunity to develop a digital marketplace in the global freight industry, building on the strengths of Baltic Exchange and our commodity franchise.”
The Foolish takeaway
SGX may not be the company that grows at astronomical rates, but it offers a stable business with growing dividends. This characteristic makes SGX a great starter stock. The company also pays a dividend every three months, which is similar to what most real estate investment trust (REITs) do. At Singapore Exchange’s current share price of S$7.31, it has a dividend yield of around 4% and a price-to-earnings ratio of 21.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited. Motley Fool Singapore contributor Sudhan P owns shares in Singapore Exchange Limited.