Introduction: Singapore Blue Chips to Buy 2021
What are the 10 best Singapore blue-chip stocks to buy for 2021?
Before I get into it, let me explain what a blue-chip is.
A blue-chip stock is a company that has a huge market cap, good reputation and have many years of success in their industry.
In fact, blue-chip stocks are often one of the largest businesses in its industry.
For example, Wal-Mart, is a U.S. blue chip. It is the biggest discount retailer because of its massive global distribution network.
And that allows it to sell products at unbeatably low prices. It’s very, very hard for other companies to compete with it.
Another U.S. blue-chip is Coca-Cola.
Everyone can associate with Coca-Cola’s red and white logo.
And everyone can associate with Coca-Cola’s renowned sweetened drink all over the world.
I want to tell you something important here.
Investing in blue-chips is special for two reasons.
Firstly, compared to a lot of other investments, you know that blue-chip are one of the safest stocks out there.
If you’re starting out investing, you’ll feel safe because these blue-chips have business that have been successful for a long, long time.
Blue-chip stocks consistently grow their revenues, profits and generate a huge amount of free cash flow for their shareholders
And because they can gush out tons of free cash flow, blue-chip stocks often reward their shareholders with abundance – many years of dividends.
Secondly, you can spend a lot of time picking winners.
You can study for days and learn how to analyse stocks.
You can pour hours after hours going through financial statement.
But the thing is, if you’re like a lot of people, you’ve got a job, a family keeping you busy.
You may not have the interest or time.
The shortcut? You can simply buy blue-chip stocks.
In Singapore, you can find some of the best blue-chip stocks here.
In fact, many of them have sold products and services for many, many years.
Sure, by sticking with Singapore blue-chips, you might miss out on the next Facebook, or Starbucks, or even the next Amazon.
But remember, for every winner like Facebook, there are 1,000 failed companies just like them.
Even professional fund managers struggle (and often fail) to pick these type of winners.
And it’s way, way easier for the average investor to consistently pick blue-chip companies that sell boring stuff and pay ever increasing dividends.
If you’re interested in growing your wealth in the stock market, consider looking at Singapore blue-chips.
I call the 10 best Singapore blue-chips to buy now the ‘mother lode’ of all Singapore blue-chips.
If you’re building a portfolio for your long-term wealth, looking at blue-chip companies makes a lot of sense
(And yes, by the way, I’ve generated my profits safely by simply buying and holding high-quality Singapore blue-chips).
Singapore Blue Chip #1: Buying Singapore’s Largest Industrial Landlord
Ascendas Real Estate Investment Trust (SGX:A17U) needs no introduction.
It has a market cap of S$12.4 billion.
This REIT is one of Singapore’s top 30 companies that is also part of the Straits Times Index (STI)
The Straits Times Index (STI) lists out the top 30 Singapore companies based on how valuable they are.
This is traditionally Singapore’s largest industrial REIT, owning logistics, warehouse facilities and light-industrial buildings that serve to electronics, food, machinery tenants.
But these days, Ascendas REIT have evolved into something else.
You see, it’s moving not only into the business & science parks, which has done for them very well.
But they also are moving into data centres.
It recently announced that it bought 11 data centres worth S$960 million, all of it in Europe.
Source: www.dividendtitan.com
Ascendas REIT knows where to smell the latest trends
Data centres are a huge asset to today’s digital age.
More companies are moving into cloud computing.
More people are using smartphone devices. Even homes are getting into the internet of things.
The 5G revolution, and all of that above requires a place for data.
Data centres act like a home for the internet.
When you want to stream a video, post pictures online, or even upload your office documents, you need a physical space to store all these virtual data.
That’s why Ascendas REIT wants to get into this game. And fast.
By moving into the business, science parks and data centres, Ascendas REIT captures the high-quality tenants of today — not just government agencies like DSO National Laboratories, the big Singapore banks, or telecommunication companies.
But also fast-growing technology companies that are generating immense amounts of cash flow.
In other words, Ascendas REIT wants companies — at the forefront of technology, biomedical science, banking and telecommunications – as their paying tenants.
Diversification makes investing in Ascendas REIT safe
And what’s even better, is Ascendas REIT makes sure that not one of its tenants take up more than 5% of Ascendas REIT’s gross rental income.
I believe this is important here.
Because no matter how big these tenants are in their fields, Ascendas does not need to rely on any of them to grow the business.
You see, if anyone decides to leave the properties, Ascendas can easily find another tenant without worrying about a drop in rental income.
During the COVID pandemic last year, even though 9 out of its more than 1,400 tenants pre-cancelled their leases, it didn’t affect Ascendas REIT one bit.
In its latest financial quarter second half of 2020, Ascendas REIT gross rental income grew 12.5% to hit S$528 million.
Its total distribution to shareholders grew 9.8% to S$275 million over the same period.
If you’d held Ascendas REIT since its IPO in 2002, you’d have made more than 500% on your capital, including dividends.
That’s a solid 11% returns per year.
Today, its dividend yield is 4.67%.
Ascendas REIT, in my opinion, is one great way to invest in the next internet revolution through a Singapore REIT.
Ascendas REIT is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #2: Getting in CapitaLand’s Most Underrated Brand
Ascott Residence Trust (SGX:HMN), or Ascott is one of the truly great businesses of CapitaLand.
And the man behind Ascott is a visionary.
The late Mr. Ameerali Jumabhoy was always willing to challenge conventions.
Without him, CapitaLand wouldn’t have built one of the best trophy assets of today — The Ascott brand.
I’d say Ascott is one of Singapore’s iconic, yet overlooked property brands.
Mr. Jumabhoy founded Scotts Holdings (a property company) in 1982. And used it to open The Ascott Singapore (or Ascott) two years later — the first world-class serviced residence in Asia Pacific at that time.
Ascott got its name from its Scotts Road location.
And it was inspired by the famous British races at Ascot — an extra “t” was added to prevent copyright issues.
Mr. Jumabhoy had a love for these equestrian sports.
At its peak, Scotts Holdings had more than S$600 million worth of assets.
Scotts Holdings later on merged with Stamford Group, owned by DBS Land at that time, to form The Ascott Limited.
Then, Ascott was bought by CapitaLand Ltd. (a merger between DBS Land and Pidemco Land).
Ascott REIT is the cash cow of The Ascott
Ascott is the biggest hospitality trust in the Asia Pacific region.
And the eight largest hospitality trust worldwide.
After a merger with Ascendas Hospitality Trust, Ascott Residence Trust has a market cap of S$3.3 billion.
Today, Ascott has more than S$7 billion worth of property assets across the world.
This Singapore REIT runs more than 86 properties in 38 different cities and has over 16,000 residence units.
Casual travelers like you and I might rely on online travel websites — Agoda, TripAdvisor and Expedia — to plan our holiday stay.
But for many business travellers, they turn to the more luxurious, medium to longer stay places.
And Ascott caters to these group of people with its rich portfolio of global brands — Ascott, Citadines, Somerset Serviced Residence, Sheraton, Pullman, Doubletree by Hilton, Courtyard by Marriott, The Credit Collection, ibis and lyf by Ascott.
Source: www.dividendtitan.com
Now, what I like about Ascott is this.
Most of its properties are freehold leases.
This means Ascott owns its properties forever.
This is unlike many of our Singapore properties where a property sits on a land lease of up to 99 years.
Industrial properties? Up to 60 years only.
You see, when leases expire, Singapore REITs have to raise money to renew their 99-year or 60-year leases.
But not Ascott.
And I find freehold lease a valuable asset.
This also means Ascott’s properties will get more valuable
over time.
Investors know they don’t have to put in money to renew those leases.
But Ascott is more than just freehold leases
Half of its gross revenues come from “long-term” fixed management contracts.
These contracts are always paid to Ascott, whether there’s a pandemic crisis or not.
That keeps Ascott going. The other half is what I call a ‘variable fee’ structure.
This means Ascott gets to share in a profit with the hotel it leases its properties to.
So, as the hotel makes more money, Ascott REIT collects a larger percentage of that profits.
Ascott is not profiting now because its hotels are shut down across the world.
But, in my opinion, its full potential gains will immediately see a strong rebound once the COVID
pandemic ends.
What’s even better is Ascott’s share price works like a bond — largely stable.
Even after COVID pandemic, its shares quickly recovered to its average S$1.00 per share.
Today, its dividend yield is 2.89%.
But historically, Ascott’s has paid close to 8 cents per unit in distribution.
I think its “normal” dividend yield is much higher at 7%, once this whole pandemic is over.
Because the market know it always pays out close to 100% of its distribution as dividends.
This creates share price stability.
That’s why I find this a strong dividend payer.
Ascott best gains have yet to come.
And what’s more, Ascott has a strong balance sheet. That allows them to borrow more money to grow their property portfolio.
And also allows them to comfortably refinance any debt that is maturing.
I don’t think Ascott will hit any financing issues at all.
Ascott has the largest exposure of its properties to countries with a low rate of infection —
Singapore, Australia, Vietnam and China. And these properties already take up 41% of its total property assets.
Vaccines and governments signalling herd immunity?
I feel Ascott is ready to profit greatly from this return to normal.
I cannot imagine companies stop being global.
I cannot imagine companies will stop sending their staff across the world for business.
The world will get more inter-connected not only online, but physically too.
And travellers, whether for work or leisure, will need a comfortable, affordable place to stay in.
Ascott should continue to benefit.
Ascott Residence Trust is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #3: The One Singapore REIT You Must Own
CapitaLand Integrated Commercial Trust (SGX:C38), CICT is Singapore’s biggest REIT with a market capitalization of S$14 billion.
Today, it’s also the third largest REIT in Asia, behind Hong Kong’s Link REIT and Australia’s Scentre Group.
If you ask me, this is one Singapore REIT I’m never selling. It’s the “grand daddy” of all Singapore REITs.
CICT is the largest retail landlord, holding 9% of all retail properties in Singapore.
(Frasers Centrepoint Trust comes second, at 4.4%).
Before I continue, I’ll share a brief background about CICT.
CICT was a merger of both CapitaLand Mall Trust and CapitaLand Commercial Trust.
And CapitaLand Mall Trust was the first publicly-listed Singapore REIT launched in 2002.
It grew from three retail properties – Tampines Mall, Junction 8 and Funan DigitaLife Mall to 24 properties, including five integrated developments.
Source: www.dividendtitan.com
I’ll say CICT is one of the pioneers to ‘commercialize’ the way retail malls are run.
And retail malls today are run differently from the emporiums that we see in the early 1990s.
I’ve owned CICT for many years, paying me generous dividends year after year.
Surprisingly, even after the COVID pandemic, its shares remained very resilient.
When I think about CICT, I think about Singapore’s national pride.
Many of Singapore’s traditional businesses can continue to do well year after year.
And I think it’s CapitaLand’s duty to make sure our Singapore REIT continues to grow.
Having said that, people think the landlord business is simply “sitting around and collecting rent”.
But it’s not all that.
CICT’s secret sauce
A lot of effort is needed to source for the best tenants and making sure the quality of these tenants remains high.
CICT also needs to make sure these tenants can stick with the property for the long term, crisis or not.
CICT maintains their relationship well, that’s why their tenant retention rate during the COVID pandemic is high.
And each tenant does not contribute more than 5% of CICT’s overall rental income.
This is important.
Because if one or two tenants decide to pull out, it’s easy to CICT to replace these tenants without hurting this Singapore REIT’s rental income.
What truly sets CICT apart from many other Singapore REITs, is it can take on an older building and transform it into something trendy – boosting profits.
This is also called asset enhancement initiatives, or AEI.
For instance, CICT took one of its quiet, consumer electronics mall and turned it into one of the busiest social retail malls at downtown City Hall.
This mall is called Funan Mall.
It was completely refurbished in 2019, and now holds more than 200 brands, with at least 30% of its stores in flagship-concept stores.
Flagship stores are lead stores of a retailer that shows its more popular brands.
This is to attract customers into the brand, more so than selling something on the spot.
A flagship store is the most flexible store in the chain.
According to CICT’s financial reports in 2019, monthly shopper traffic grew more than 70% compared to the old Funan DigitaLife Mall.
In fact, Funan Mall’s property valuation has more than doubled since CICT refurbished the entire property.
Funan Mall’s occupancy rate improved from 95% to 99%.
CICT also transformed many other iconic retail malls, including Bugis+ and JCube.
In CICT’s latest first quarter business update in 2021, shopper traffic and tenants’ sales have improved massively.
Shopper traffic recovered 75% to its pre-COVID levels.
And tenant sales have more than recovered above 103% from pre-COVID levels.
Besides its leisure & entertainment tenants, most of its retail segments have reported improved sales during the quarter.
Here’s the other thing.
According to CBRE Singapore, it’s getting harder to build new retail malls in Singapore.
This is because there’s a limited retail supply between 2021 and 2023.
Even if there’re new competing retail malls, it’s hard to fight with CICT’s well-entrenched retail malls.
CICT has rewarded shareholders with abundance.
It grew dividends from 3.38 cents per share to 11.97 cents per share in 2019.
Because of the COVID pandemic, CICT had to slash half of its dividends paid out by 6.95 cents per share.
Its current dividend yield is 3.2%
I’m not concerned about this.
Because, in the long run, I believe CICT dividends can rebound and grow even higher year after year.
I expect its normal dividend yield to be around 5.5%.
CapitaLand Integrated Commercial Trust is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #4: Buying South East Asia’s Biggest Bank
DBS Group (SGX:D05) needs no introduction.
In 1968, the Singapore government set up the Development Bank of Singapore to take over the industrial financing activities from the Economic Development Board.
The bank was later on remained to DBS Group to reflect its status as a global bank.
Today, DBS is the largest bank in South East Asia and has a market capitalization of S$76 billion.
From helping people save their money, to underwriting IPOs, to trading and now growing the bank into a wealth management machine.
Today, DBS Group is at the top of nearly every finance category – savings, underwriting IPOs, trading, investment banking.
And its efforts have paid well.
But that’s only scratching the surface.
Source: www.dividendtitan.com
The thing is, DBS has a solid deposit franchise in Singapore.
DBS commands the largest deposit share in Singapore – 25%. Beating rivals like OCBC Ltd and UOB Ltd.
Any big banking CEOs will tell you the key success metrics to their business is the number of deposits their bank can grab.
That’s why banks always want you to put your deposits with them.
Why do you need to understand this?
Because the more deposits DBS have, the more money it lends out to.
DBS plays the volume game.
It’s a simple business.
As long you can charge a higher interest rate to borrowers versus the interest you pay on your deposits, you make money
(By the way, this difference between what you pay to depositors and what you collect from borrowers is called a net interest margin).
That’s why DBS bought over Post Office Savings Bank (POSB).
By 1976, POSB had one million depositors and deposits crossed the S$1 billion mark.
POSB was one of the largest deposit banks back then.
And POSB had the highest number of bank branches found deep neighbourhood of Singapore.
And when DBS has a flush of deposits, it can lend out to some of the most profitable and safest companies at a very competitive rate.
This also makes DBS one of the safest banks in the world.
Unlike the banks that went bust during the global financial crisis, DBS made sure it never lent out more than it took in deposits (loans were always less than deposits as shown below).
Source: DBS Group Company Presentation
But what many people don’t know about DBS is this.
DBS’s key growth area is in wealth management.
Ever since it bought over a huge wealth management business from French bank, Societe Generale, DBS has grown the wealth assets under its management at S$234 billion.
That’s almost as big as our sovereign wealth fund, Temasek Holdings.
In fact, its wealth management business has taken up a third of its revenues.
Now, in the financial business, the only good way to substantially boost profits is to increase the size of the loans and increase the amount of leverage.
And the only way to do it safely is to increase the number of deposits.
Why?
One good measure of a bank’s profitability is using the return on equity (ROE).
This simply measures how much profits a bank makes for every dollar of equity its shareholders put and how much it receives.
So far, DBS has consistently achieved a solid ROE of 11% on average.
More importantly, DBS dividends grew since 26 cents per share to S$1.50 per share between 2001 and 2019.
Not only that, it recently also bought Lakshimi Vilas Bank in India and has a small 13%-stake in Shenzhen Rural Commercial Bank.
These huge purchases allow DBS to move aggressively in the north Asian region.
DBS is a conservative bank.
Even during the oil & gas default, it has taken on some provisions but it did not suffer a major loss.
DBS Group is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #5: How to Own the World’s Data of Tomorrow
Mapletree Industrial Trust (SGX:ME8U) is getting in to the unstoppable wave of the 5G revolution.
5G, or fifth-generation wireless technology is often portrayed as the road to the “internet of things”, self-driving cars, cloud computing and smartphone devices.
All of these require more data than ever before to run these technologies.
And what’s more is you need to store these massive volume of data in a specialized, storage space that people all over the world can access it.
These storage spaces are called data centres
Source: www.dividendtitan.com
How to own the world’s data of tomorrow
Buying data centres is a big move for Mapletree Industrial Trust.
And this traditional industrial landlord wants to become a data centre giant.
In fact, they want to have at least two-thirds of their S$6.6 billion property portfolio in data centres. And they are on track.
On May 2021, management said they will spend another S$1.7 billion to buy 29 data centres across 18 states in the U.S.
These data centres are 88% leased to 32 tenants, many of them are Fortune 500 companies and publicly-listed companies.
Many of these data centres are located in top data centre market in the U.S.
Once these purchases are completed, Mapletree Industrial Trust will have S$8.6 billion worth of properties.
And data centres will account for close to 54% (up from 41%) of its entire portfolio.
But that’s not all.
Mapletree Industrial Trust is also redeveloping its older industrial buildings.
For example, its Kolam Ayer 2 cluster along Kallang Way will be refitted into a high-tech industry with a renovation cost of S$263 million.
These are well located in established industrial estates and business parks.
And served by good transportation networks.
Today, Mapletree Industrial Trust owns 115 properties split among the various types of industrial buildings – flatted factories, business parks, light industrial buildings, hi-tech parks, data centres.
In its latest financial year results ending March 2021, Mapletree Industrial Trust’s gross revenues grew another 10% to S$447 million, while distributable income grew 11% to S$295 million. Its distribution per unit (DPU) grew 2.5% to S$0.1255 per unit.
Since listing, Mapletree Industrial Trust has rewarded shareholders well.
It grew its distribution per unit (DPU) from S$0.84 per share in 2012 to S$0.12 per share in 2020.
Mapletree Industrial Trust is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #6: Reopening the World Means This Winner Will Bring in Cash Again
Who provides all your in-flight food services on the airplane and makes sure your luggage is safely handled?
Enter SATS Ltd (SGX:S58).
SATS is Singapore’s largest in-flight food services and freight logistics business.
And was born out from a need to meet the growing demands of Singapore’s fast-growing airline industry.
In 1972, SATS was formed only with 1,673 people.
And opened its first air freight terminal at the old Paya Lebar airport — it handled 160,000 tonnes of cargo a year.
Today, SATS manages over five million cargo tonnes a year. Across 13 countries.
Before the COVID pandemic, this “asset-light” business handled close to 160 million passengers’ food and luggage — that’s more than the size of Japan’s population today.
The COVID pandemic last year has not only wrecked airlines, but all the peripheral companies along with it.
And that includes SATS.
Source: www.dividendtitan.com
Because all airlines were grounded, SATS Ltd saw a huge drop in their revenues and earnings.
In its latest financial year results that ended March 2021, revenues dropped to S$970 million, and racked net losses of S$109 million.
But here’s the thing.
What I like about SATS Ltd is it’s not suffering the same fate as airlines.
It’s not in a fragmented industry.
It’s a monopoly in its own niche – food services and logistics.
And what’s more important is, SATS doesn’t need to borrow heavily like the airlines.
SATS is an “asset-light” business, and the company doesn’t need to invest in expensive aircrafts, build factories or invest in heavy equipment.
Now, my take here, is once the COVID pandemic recovers.
Once the pandemic turns endemic.
Once everyone starts travelling.
I know this dominant market leader will be back in business.
And its stock is waiting to soar.
SATS Ltd controls 80% of Changi Airport’s gateway services, including luggage handling and in-flight services.
That means, any airlines passing through Changi Airport have to do business with SATS Ltd.
Of course SATS doesn’t operate in Singapore alone.
Over the past years, it has grown all over the world.
In the meantime, SATS is pivoting into security services beyond the aviation industry and into the cruise industry.
It also has a war chest of cash to tide them through.
This is a stark difference, where you see regional airlines from Thailand, Philippines struggling to survive.
It has cash position of S$880 million that can cover all its liabilities.
I’d say SATS Ltd balance sheet is unblemished.
With its history of generating solid free cash flow, SATS Ltd has accumulated a huge cash position that more than covers all of its liabilities.
I believe its healthy financial position allows it to tide through the pandemic.
As a result, it not only gets to keep a substantial portion of its cash generated, it rewards shareholders with abundance.
This Singapore giant’s 10-year average dividend pay-out ratio is around 73%.
And has grew its dividends from 5.5 cents per share in 2000 to 19 cents per share in 2019.
Last year, it cut its dividends to 6 cents per share.
I feel that’s temporary.
It’s true this company depends on the airline industry and right now, the entire industry is ravaged from the pandemic.
But I believe, over the long term, things will improve and return to pre-COVID days.
In fact, SATS Ltd cargo associates in Hong Kong, Taiwan and Vietnam returned to profitability in the last quarter of 2020.
And cargo revenue saw a 22% quarter-on-quarter growth.
Asia is seeing strong air cargo returning.
International air cargo volume has improved by 7.1% in Feb 2021 as compared to 2019.
And the IATA expects air cargo volumes to rise by 13% year-on-year in 2021, exceeding 2019 by 2.8%.
That’s why, I think SATS is far from dead.
Its revenues will hit beyond S$2 billion over the next few years, considering the “pent-up” demand of air travel.
And when with its “normalized” three-year average of net profit margins of 15%, earnings should be around S$300 million per year.
With a dividend pay-out ratio of 73%, that’s about S$220 million of dividend per year, which based on its current shares outstanding, should be around 20 cents per share.
And I believe its dividends can continue to grow beyond that.
SATS Ltd is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #7: This Business Has Virtually Zero Competition
Singapore Exchange (SGX:S68), SGX is one of Singapore’s traditional blue-chips.
It’s also one of my favourite stocks.
In fact, this Singapore stock has paid me dividends year after year since 2016.
And I enjoyed a solid 60% returns (including dividends) on my capital.
Whether you agree with me, or not. I’ll say it: this company has virtually zero competition.
SGX was formed in 1999.
It provided a crucial role for Singapore — to make sure every stock and bond are safely and securely traded amongst investors.
The business model for SGX is simple.
As more investors trade Singapore stocks, the greater volume of trades on the SGX’s platform.
And the more trading fees the company makes.
And with more investors putting in money to trade, more companies are willing to list on the SGX.
Finance professors will tell you this is “the network effect”.
In fact, SGX brought in more company listings.
Two years ago, the company listed 10 companies on the stock exchange worth S$2.3 billion.
Source: Yahoo! Finance
Even during COVID last year, SGX’s management said: “We’ve seen an increase from potential IPO aspirants.”
But SGX is more than that.
The entire Singapore REIT market is made possible only with SGX.
And today, the Singapore REIT market is the fourth largest in the world, behind the US, Australia and Japan.
It’s the largest in Asia (excluding Japan) with 44 REITs and property trusts worth S$100 billion.
I’d say SGX’s business model has an incredibly simple concept.
As Singapore gets wealthier, more people save, the more they invest.
And Singapore has one of the highest savings rate in the world.
People, like you and myself, traded S$150 billion worth of stocks between 2000 and 2004.
But over the past three years, that amount doubled to S$300 billion.
This is despite the oil & gas bust in 2015, “S-chip” stocks default and the global financial crisis.
SGX by the financial numbers
During the first half of financial year 2021, SGX produced S$521 million revenues, up 9% versus a year ago.
It made net profits of S$240 million, up 12.5% versus a year ago.
The bulk of its profits are fees collected from settling stock trades.
In fact, during that same period, the total traded volume rose 49% last year to S$223 billion worth of stocks.
You see, SGX holds the exclusive license to operate a stock exchange in Singapore.
That’s why there’s no other competitors who can compete with SGX.
In some ways, this is truly “a winner takes all here”.
In 2000, it spent S$32 million on capital investments — money that’s needed to maintain and grow the business.
And produced S$136 million in revenue.
Now, 20 years later, SGX spends S$35 million — same amount.
But its revenues grew 674% over these 20 years.
SGX needs little capital to maintain and upgrade its technology.
That allowed SGX to gush free cash flow year after year.
It grew free cash flow from S$294 million to S$590 million over the past 11 years.
Its returns on equity (ROE) averaged 36%.
ROE is a measure of how much a company generates profits for every dollar of cash invested into the business.
It’s a strong indicator of “capital-efficiency”.
This Singapore stock is a solid dividend payer
So what does Singapore Exchange do with all that excess cash?
SGX rewards its shareholders with abundance.
Over the past 20 years, it grew dividends from 5.5 cents per share in 2001, to 30.5 cents per share in 2020.
In its latest financial year results of 2021, it rewarded shareholders 16 cents per share, higher than its 15 cents per share over a year ago.
But SGX gains aren’t over.
Today, Singapore is a key financial hub of the world.
With Hong Kong’s precarious situation with China, the next best place for the rich is park their money is in Singapore.
According to MAS, Singapore holds S$4 trillion worth of assets under management — stocks, bonds, financial products.
Much of which have to go through SGX to settle trading positions.
And that’s making SGX a lot of money.
This is one Singapore blue-chip I’m sitting on — collecting its steady dividends year after year.
The Singapore Exchange (SGX) is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #8: How to Buy Singapore’s Leading Defence Contractor
Dr Goh Keng Swee said: “The first thing an independent state must have is a defence force.”
And that’s how one man’s opinion paved the road to launch Singapore’s armed forces.
And that’s how Chartered Industries of Singapore was formed in August 1967 — It first produced the 5.56 mm bullets and the M16S1 assault rifle for the Singapore Armed Forces.
At a point, Chartered Industries of Singapore was even minting coins for the newly independent Republic of Singapore.
At its heart, Dr Goh knew that defence was truly the centre-piece to develop Singapore’s engineering capabilities.
That’s why, in 1989, Chartered Industries of Singapore became part of the larger umbrella, called Singapore Technologies Engineering (SGX:S63).
Today, Singapore Technologies Engineering is a S$12 billion defence contractor.
Source: Yahoo! Finance
This defence company sells a huge amount of defence equipment and services that the Singapore government needs.
In fact, it has long held the title as Singapore’s main defence contractor.
This company makes almost all types of defence-related products.
I’m not the least worried because I know ST Engineering has a pipeline of solid projects.
ST Engineering is all about innovation
In 2007, this leading defence contractor built the world’s lightest, ‘light’ machine gun in 2007.
They call it the Ultimax 100. And it weighs only 6.8 kg. That’s lighter than carrying a sack of rice from the supermarket.
But that’s not all.
ST Engineering is more than simply making defence technologies.
The company has expanded into commercial projects like aircraft maintenance and repairs.
It’s also a big contributor to “smart nation” projects across Asia.
For example, during the Sars crisis in 2003, ST Engineering worked with Defence Science and Technology Agency (DSTA) to build portable fever scanners — known as the Infrared Fever Screening System.
The scanner screened the entire country for fever, which was an early indication of the Sars infection back then.
Times magazine named it one of the coolest inventions.
ST Engineering’s return on equity (ROE) is 23% last year.
But this isn’t one-off.
It has generated on average 27% ROE over the past 10 years.
Not many Singapore blue-chips can even hit a solid 10% ROE – it’s impressive for a traditional Singapore company.
Another thing about ST Engineering’s moat is the ability to get contracts from the government.
So far, this Singapore blue-chip has steadily increased contracts, hitting close to S$16 billion.
This gives ST Engineering great revenue visibility over the next few years.
Over the past 12 months, the company spent S$287 million in capital investments.
These are used to run the business and maintain its growth.
And generated well over S$1.3 billion. It generates free cash flow anywhere between S$200 million to $800 million.
With this steady stream of free cash flow, ST Engineering rewards its shareholders well.
It has paid dividends over the past 15 years. It has paid out and grew dividends from S$0.136 per share in 2006 to S$0.20 per share last year.
As a result of its strong business, ST Engineering shares is resilient.
Despite the COVID pandemic, its shares quickly rebounded close to its pre-COVID highs, returning all the losses during 2020.
Defence project to Singapore is crucial.
Considering we are a small island state with no natural resources.
As long as we are faced with political crisis, defence is a need to maintain our national security interests.
This is one top defence contract Singapore is going strong.
ST Engineering is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #9: Buying South East Asia’s Biggest Alcohol Drink Business
Thai Beverage Public Company (SGX:Y92), or ThaiBev is the quintessential alcohol investment.
It’s an alcoholic beverage brand loved by its Thai customers.
Some of its popular brands include the signatures — Chang Beer and Ruang Khao.
ThaiBev is one of Southeast Asia’s biggest alcoholic beverage company with a market cap of S$17 billion.
There’s nothing exciting about alcohol drinks.
It’s for casual consumers, and has been around for centuries.
But the thing about alcohol drinks is it’s a product that sells well in good times. And bad times.
And the thing about beer is it doesn’t need to use any high technology or expensive equipment.
ThaiBev makes reasonably affordable beer that’s timeless and doesn’t go out of favour.
Like many businesses, ThaiBev got hit by the COVID pandemic.
Source: www.dividendtitan.com
But this beverage business was more resilient than any other good business.
In its latest first quarter results of 2021, ThaiBev’s revenues dipped marginally by 4% to THB59 billion.
But net profits grew 17% to THB6.5 billion. It was able to cut back its distribution and other fixed costs.
What’s interesting here is it’s able to make use of low-cost, long-term borrowings to finance its business, because its revenues are “non-cyclical”.
As a result, the company is able to produce a strong 10-year ROE average of 22%.
And more importantly, it’s able to produce revenues and profits with little additional capital investments.
It’s a “capital-efficient business”.
Over the past 10 years, it never had to spend more than THB8 billion per year. Yet, it has been growing its free cash flow from THB12 billion to THB32 billion during 2010 and 2020.
In 2010, ThaiBev paid THB3 billion in capital spending. By 2020, it spent only THB4.6 billion. Hardly a huge increase.
Meanwhile, it was rewarding shareholders with abundant dividends year after year since 2010.
Last year, ThaiBev paid THB0.46 per share during the COVID pandemic.
While many companies had to stop paying dividends, ThaiBev is one of the few who maintained their dividend pay-outs.
I’d say that’s the beauty of a capital-efficient business.
Revenues and profits grow, but capital investments don’t.
I’m only scratching the surface.
In Vietnam, ThaiBev dominates 40% of Vietnam’s beer market with its Bia Siagon and 333.
It even beat Dutch brewing company, Heineken which holds a 25% market share in Vietnam.
The fact is, ThaiBev is the biggest beer market in Southeast Asia. And they sell over 2.4 billion litres of beer within the region.
That’s 274,000 litres of beer every single hour. That’s impressive.
And ThaiBev’s goal is to be the biggest beverage producer in Southeast Asia.
That’s not all.
You see, the entire Southeast Asia population has a huge growth potential in alcoholic beverages.
ThaiBev two biggest market — Thailand and Vietnam — have a combined 165 million people, bigger than the size of Japan.
And both countries have a strong drinking culture. According to WHO’s Global Health Observatory Data Repository, Vietnam and Thailand are the second and third largest Asian countries respectively that
consume the most alcohol per capita (South Korea is unsurprisingly at the top).
There aren’t many food & beverage businesses you can realistically say they dominate their industry.
The F&B business is a highly fragmented and competitive market. And there are very few businesses you can truly hold for the long term.
ThaiBev is one company that has a leading “habit-forming” product that will not go out of favour for more than 100 years.
Thai Beverage Ltd is in my Best 10 Singapore Blue-Chips to Buy for 2021
Singapore Blue Chip #10: How to Buy This ‘Quiet’ Singapore Dividend Machine
Venture Corp (SGX:V03) was founded in 1984.
You could say Venture Corp is an OEM giant, mailing electronics devices for Fortune 500 companies.
An OEM is a company who makes equipment and devices that are used in another company’s end products.
For instance, Venture Corp makes Hewlett Packard’s printers.
Venture Corp hit its first billion-dollar revenue in 2000 — riding the booming trend of the dot-com era of the late 1990s.
Not many people know this.
But I’ll tell you.
Source: www.dividendtitan.com
Venture Corp makes a wide range of stuff.
The stuff that many technology companies need last time — printing and imaging products, routers, barcode scanners, networking and communication products.
These are all bought by big telco players, semiconductor manufacturers and consumer electronic makers.
It counts big brands like Hewlett Packard as its long-time customers.
At one point, it almost clinched a huge project with Philip Morris (seller of Malboro cigarettes) to manufacture e-cigarettes.
The thing is, Venture Corp doesn’t only sell in Singapore, but across all over the world in Asia.
Venture Corp’s 40 years of reputation earned it an electronics maker “powerhouse”.
I’ve studied Venture Corp’s annual reports for years.
If there’s one thing, I say Venture Corp has done exceptionally well is this.
It constantly adapts swiftly to our fast-changing world.
Right now, the company is transforming itself.
Venture Corp is looking into making stuff for the life science genome, artificial intelligence, ‘internet of things” industries. Even moving into the electric vehicle battery industry.
And despite the COVID pandemic, Venture Corp continued to grow steadily.
During its first quarter financial results of 2021, revenues and net profits grew 2% and 8.3% respectively year-on-year, to S$687 million and S$65 million respectively.
Management expects the company to improve further in the second quarter.
Venture Corp’s growth potential is huge.
For example, global “Internet of Things” is expected to grow at a rate of close to 14% per annum till 2023.
And with quicker transmission of data, larger network capacity, plus a more secure 5G will push more devices to be connected using the Internet of Things.
According to International Data Corporation (IDC), a global market intelligence firm, global Internet of Things spending will reach US$1.1 billion by 2023, up from US$749 million in 2020.
Many companies in these related industries are going to need Venture Corp to make the stuff to fulfil a growing demand.
But what’s more important is Venture Corp’s alignment with shareholders.
Management does not have a fixed dividend policy.
But the company has paid dividends in abundance since its listing in 1992.
And they are able to maintain this perfect track record.
All from its cash flow generative business.
It paid an average 50 cents dividends per share.
Last year, it decided to reward shareholders with a 75 cents per share dividends.
As a whole, Venture Corp has paid out over S$2.3 billion since 1992 till date.
This is a steady dividend payer.
Venture has enough firepower to continue its rich research & development capabilities across various technical domains.
This allows it to quickly adapt and transform its business to the latest technology developments.
I think Venture Corp is a great company to get into if you’re interested in riding the huge technology wave.
It’s a different type of company, unlike the smaller OEM companies or the largely unprofitable technology stocks.
Even though Venture Corp’s growth may not be as strong, but it provides a certain level of stability and safety to its dividends.
A perfect fit for a dividend portfolio.
Venture Corp is in my Best 10 Singapore Blue-Chips to Buy for 2021
Final Thoughts: ‘Boring’ Singapore Blue-Chips Help Grow Your Wealth in Retirement
As great as the idea of buying Singapore blue-chips is, you might not want to pursue this strategy at the start.
And here’s my reason: this investing approach is boring.
You’re buying big, safe companies with strong businesses and holding them for years and years.
Checking up on these companies simply means hearing about modest growth in revenues, profits… and increases in dividend payments.
There’s nothing exciting about them.
You’ll know these companies typically don’t talk about big “breakthroughs” that could exponentially scale up their revenues and profits.
Instead, they report steady revenue growth and relentless dividend raises.
And many of these Singapore blue-chips do this year after year.
There’s not much “action”.
Most of the time, you’re sitting there and waiting.
But most people seek action when it comes to investing.
They follow hot tips.
They want to strike it rich with one big win.
And they simply can’t bring themselves to buying and holding these Singapore blue-chips.
The thing is, growing your wealth is about collecting a basket of solid businesses at a fair price.
And picking from the ‘mother lode’ of Singapore blue-chips will help you grow your wealth faster.
You’ll sleep well at night knowing these Singapore blue-chips will continue to grow and pay you regular cash dividends.
It’s the closest thing to building wealth machine for your retirement.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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great read
thx
phil
Hi Phil,
Thank you!
Willie
nice article… I quite enjoy hearing your thoughts on the local market and companies. thanks for sharing
Hi Matt,
You’re welcome 🙂 glad you enjoyed them.
Willie
Hi Willie,
find you articles to be quite your genuine thought n experience… enjoying reading them!
Joe
Hi Joseph!
Thank you for the kind words 🙂 do continue to hang around for more articles.
Cheers,
Willie