This Singapore stock has paid me dividends year after year, since 2016 — A neat 60% return profits.
Believe it or not, I’ll say it — this company has virtually zero competition.
I’m talking about The Singapore Exchange (SGX:S68), or SGX. This is one of Singapore’s traditional blue-chip companies.
It formed in 1999 to provide a critical role for Singapore — making sure every stocks and bonds traded safely and securely amongst investors.
You can read SGX’s “network effect” business model here.
“Willie, don’t you find there’re other, bigger stock exchanges like the New York Stock Exchange and Hong Kong Stock Exchange?” One of my readers asked.
I said: “Don’t judge a stock exchange only by the number of listed companies.”
Because as more investors trade Singapore stocks, the greater the volume of trades on SGX’s platform.
The more trading fees the company makes.
And with more investors pour in money to trade, more companies are willing to list on the SGX.
This Singapore stock has one thing — “Network Effect”
I call it the “network effect”.
In fact, SGX brought in more company listings.
Two years ago, it listed 10 companies on the stock exchange worth S$2.3 billion.
Even during the COVID pandemic, management said: “We have seen an increase interest from potential IPO aspirants.”
But SGX is more than that.
SGX is at the heart of Singapore’s REIT market — the fourth largest in the world.
And Singapore’s REIT market is the largest in Asia (excluding Japan) with 44 REITs and property trusts worth S$100 billion.
Think about the people who want to earn dividend yield higher than bank deposit rates.
I’d say SGX’s business model is 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.
You see, 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’s why SGX gushed 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 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.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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I love SGX and your analysis, is a monopoly biz and a moat to me.
Vested since its listing. The dividend has already paid back my capital many times over.
Will there be any stock splits or scrip dividend?
Looking fwd to either.
Thank you for the kind words 🙂 You can check their dividends announcement here:
Hope this helps.