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Dividend Play: How Does SGX Compare?
Dividend plays have been the central theme in equity investments over the past few years owing to the extremely low-interest rate environment. Despite the increase in Fed funds rate since last year, dividend plays continue to hog the limelight without abating as investors continue to view “risk-free instruments” and even bonds as less attractive to high-yield paying stocks.
Do high yield stocks necessarily mean that they are superior stocks?
SGX, another of Singapore’s Government-Linked Company (GLC), reported full-year results that saw its revenue fall a mere 2.0% to $800.8 million from a year ago despite markedly weaker sentiments in the financial industry. Falling in tandem with the revenue, operating profit fell 2.0% to $402 million while net profit came in at $340 million – a 3.0% dip compared to a year ago.
Despite slightly lower profit, SGX declared full-year dividends of $0.28 per share, representing a dividend yield of 3.7% based on its traded price of $7.52 as at the closing price on $7.57. Good, bad or average?
From FY13 to FY17, with the exception of FY15 when SGX declared a full-year dividend of $0.24 per share, the remaining years have always rewarded shareholders with dividends of $0.28 per share. From the period after FY13 till August 2017, the share price of SGX has fluctuated between $6.60-$8.80. If we were to apply the consistent dividend payout of $0.28 per share, its yield during the same period would have been 3.2% to 4.2%.
Comparing SGX With Other GLCs
Apart from the highly-fashionable REITs, investors look to stable companies when seeking dividend plays. What better company than the stable, ever-reliable blue chips anchored by Temasek Holdings as the major shareholder?
CapitaLand | 2.6% | SATS | 3.4% |
ComfortDelgro | 4.4% | SembCorp | 2.5% |
DBS Group | 2.8% | SembMarine | 1.5% |
Keppel Corp | 3.1% | SIA Engineering | 3.7% |
SBS | 2% | SIA | 1.9% |
SPH | 5.2% | SGX | 3.7% |
Figures provided by Shares Investment
In the table above, we present the latest full-year dividends declared by the GLCs listed on SGX, which also happens to include SGX.
From the table, one would probably consider these dividends to be not-so-palatable compared to REITs, which is why we mentioned: “apart from the highly-fashionable REITs”. While REITs may be attractive, most are confined to the property sector if you are looking at stocks from other sectors that may offer alternatives.
Among the list, CapitaLand – another pure property play – gave a yield of 2.6% in FY16 while the best yielding stock, SPH, gave the highest yield of 5.2%. However, one must note that 5.2% is based on the $0.164 declared back in August 2016. The share price back then was about $3.80, which means that the actual yield, if you had bought SPH shares back then at $3.80, would have given you a much lower dividend yield based on the trailing FY16 dividend of $0.164. The trailing FY16 dividend yield based on today’s share price of around $2.80 is, therefore, inflated.
SGX Still A Choice Dividend Play
At 3.7%, SGX offers a stable return yet does not suffer significant volatility in its share prices, which is suitable for yield hunters yet also able to provide investors with adequate opportunities for price upside. Over the past five years, its share price has traded within the $6.60-$8.80 range and given investors a yield of 4.2% to 3.2% based on the trading range.
If the share price were to fall to $6.60, yield hunters would be rubbing their hands with glee as they would be getting 4.2$ yield (we mentioned earlier that dividend payouts have been stable at $0.28 per share) while investors would make adequate gains if its shares were to surge to $8.80!
What To Look Out For?
The operating environment of SGX is one that is easy to understand; the company depends primarily on trading volume (both equities and fixed income), issuer services and listing revenue for the business. A watchful investor would have no problems making an educated guess on the profitability of SGX. The best way is to check with your brokers. Check if the brokers are busy trading or busy sleeping on the trading floor.
If there are more IPOs compared to the previous year, then it does not require a rocket scientist to tell you that SGX will make more money.
In the word of Loh Boon Chye, the chief of SGX, “Looking ahead, there are signs of improving market sentiment. As we grow our business, we will focus on building a stronger multi-asset exchange across geographies, and invest strategically for our long-term competitiveness.”
There you go, straight from the horse’s mouth.
However, he also mentioned that operating expenses and technology-related expenses will go up in FY18. Oops.
Upcoming Event
We managed to invite a few popular names in the finance and investment education world to speak at our upcoming Shares Investment Convention on 16 September 2017 (Saturday)!
They’ll be covering topics on personal finance, macroeconomics and investment strategies to help retail investors make more shrewd decisions especially in the current uncertain and volatile economy. Click on the button above to learn more and grab your tickets. See you there!
P.S. Don’t forget to enter promo code “SHARES10” for a $10 discount!
