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3 Reasons VICOM Limited Could be the Perfect Retirement Stock

·3-min read
Man Inspecting Car Engine
Man Inspecting Car Engine

Our golden years should be a time to recover from the stress of a hectic working life. 

However, to do so, we need to ensure that we have sufficient passive income to pay for our daily needs. 

Building a portfolio of stocks that pay out regular dividends is a great way to achieve this.

With that said, here are three solid reasons why I believe VICOM Limited (SGX: WJP) could be a candidate as a perfect retirement stock.

A recession-proof business

VICOM’s business is effectively recession-proof. 

The company operates seven of the nine vehicle inspection centres in Singapore. 

As all cars older than three years require mandatory inspections, VICOM’s car inspection business is backed by regulatory requirements that are unlikely to change any time soon.

It also is by far the biggest player in the vehicle inspection space. 

Last year, it inspected 75.2% of the vehicles that were due for inspection that year, amounting to close to 500,000 vehicles.

In addition, all private mobility devices (PMDs) also need to undergo inspection starting from September last year.

Yet another new source of revenue for VICOM is the requirement for all licensed street and ride-hail service providers with a fleet of more than 800 vehicles to undergo mandatory inspection.

This initiative commenced in April this year.

VICOM’s track record of consistent earnings in the past is a testament to its resilient business model.

Willingness to dish out higher dividends

Retirees can also rest easy that the company is willing to pay out most of its earnings as dividends. 

The group has steadily increased its dividend payout ratio in the last 10 years as it seeks to reward shareholders with higher dividends.

In addition, VICOM has a large stockpile of cash. 

As of 31 March 2021, VICOM had S$94.8 million sitting in the coffers. 

Despite the pandemic, it also generated S$2.2 million in free cash flow in the first quarter of 2021.

With its asset-light model and healthy cash balance, the group is likely to continue returning part of this cash to shareholders in the future.

Decent yield

Crucially, VICOM also sports a fairly decent dividend yield. 

With the company looking to pay out close to 100% of its earnings back to shareholders, investors can look forward to a fairly decent dividend yield.

Last year was an exceptional one for VICOM as it had to contend with tough economic conditions brought about by the pandemic.

Still, the inspection giant managed to pay out a full-year dividend of S$0.0622. At the closing price of S$2.06, this translates to a fair respectable yield of 3%.

On top of that, there is also a chance that the company will pay out a special dividend like it did back in 2018, once the downturn has passed.

Get Smart: A slow grower with dependable dividends

VICOM does have its limitations though. 

For one, Singapore is moving to a car-lite society, with the government targeting zero private car growth. 

This regulation will limit VICOM’s long-term growth prospects.

However, even with limited growth in sight, retirees may still want to consider VICOM as a potential investment. 

Besides its decent yield, VICOM is recession-resistant and is largely immune to currency risks as it operates mainly in Singapore. 

It also has a robust balance sheet. 

All these attributes make it a great choice for yield-hungry retirees looking for reliable and consistent dividends.

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Disclaimer: Royston Yang owns shares of VICOM Limited.

The post 3 Reasons VICOM Limited Could be the Perfect Retirement Stock appeared first on The Smart Investor.

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