Dividend investors like to invest in companies that are well-positioned to sustain their dividend payments over the long term.
Generally, this trait can be found in blue-chip companies that have established long-term track records of paying dividends such as Singapore Exchange Limited (SGX: S68) or DBS Group Holdings Ltd (SGX: D05).
However, there are also other less well-known companies that have the potential to grow into solid dividend stocks over the long term. Let’s look at one such stock that’s strongly positioned to deliver positive returns to dividend investors in 2020 and beyond.
The company I’m talking about is HRnetGroup Ltd (SGX: CHZ), the largest recruitment firm in Asia excluding Japan. It was listed two years ago on the Singapore stock exchange.
High dividend yield
To start, HRnet is trading at a high dividend yield of 5.0% (as of writing). This exceeds the market average yield (using the SPDR STI ETF (SGX: ES3) as a proxy for the market) of 3.9%. It is trading at such a high yield after a decline in its share price of more than 35% in the last 12 months.
In the short term, the market has some concerns about how the weaker economy might affect the business. Yet, going forward, HRnet is well-positioned to keep growing due to its exposure to a number of Asian countries – meaning it’s growth prospects are diversified. If that happens, it can also hike its dividend over the long term, giving investors an even higher dividend yield on their cost of investment.
Pristine balance sheet
Another thing to like about HRnet from the perspective of dividend investing is its strong balance sheet.
Dividends are paid out to investors in the form of cash. That cash is generally derived from one of the following sources: existing cash balance, profit, or new borrowings.
In other words, HRnet must have enough cash on hand – or at least have the ability to borrow money (if necessary) – to pay its dividend. In this case, it has no issues continuing paying dividends for the foreseeable future. Let’s look at some numbers to prove that.
As of 30 June 2019, HRnet had S$274.4 million in cash and cash equivalents and zero debt, so it looks well-positioned to sustain its dividend payment for the foreseeable future (assuming there’s no significant corporate development, such as an acquisition).
Foolish bottom line
Overall, dividend investors might want to have a closer look at HRnetGroup given its attractively high dividend yield and strong balance sheet.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Lawrence Nga doesn’t own shares in any companies mentioned. The Motley Fool Singapore has recommended the shares of HRnetgroup Ltd, DBS Group Holdings Ltd, and Singapore Exchange Limited.
Motley Fool Singapore 2019