Top 10 Singapore Dividend Stocks to Buy Ultimate Guide 2024

I wrote a 73-page guide for Top 10 Singapore dividend stocks to buy in 2024 (Ultimate Guide).

I wrote a 73-page guide for Top 10 Singapore dividend stocks to buy in 2024 (Ultimate Guide).

Spent the last couple months “deep-dive” into the corners of the market. 

DT readers in my DT Compound Letters loved it.

Here’s my top 10 stock picks for 2024:

1. An “asset-light” recruiter
2. Luxury retail giant
3. A highly “capital efficient” supermarket operator
4. Buying a safe haven for less than a dollar
5. CapitaLand’s most overlooked brand
6. Buying this quiet Singapore dividend payer
7. Victim stock with 6.6% yield
8. How to buy Singapore’s leading defence contractor
9. A financial thoroughbred
10. ASEAN’s pillar of wealth

Get the full PDF in full resolution (+ bonus content) here:

Singapore Dividend Stock #1: An “Asset-Light Recruiter” (HRNet Group)

Ticker: CHZ
Market Cap: $718 million
Current Dividend Yield: 5.2%

Source: tikr.com, dividendtitan.com

At a market cap of S$720 million, HRnet Group is a mid-sized company with an unassuming name. It’s easy to look past this company. But what struck me is how fast it has grown. HRnet Group was founded in 1992 from a four-man team, then rapidly expanded to Malaysia in 1994 and eventually got listed in 2017 to thousands of employees today. Back then, Temasek Holdings took a stake during its pre-IPO. 

Today, the recruitment giant has a stable of well-established businesses – including HRnetOne, Recruit Express, PeopleSearch, RecruitFirst , SearchAsia and PeopleFirst. Most of their revenues are in Singapore and have expanded in North Asia, some of the biggest cities in North Asia like China’s Shanghai, Beijing, Shenzhen, Seoul and Taiwan and Hong Kong.

The Power of an “Asset-Light”, Flexible Staffing Business

Even though it’s not a blue-chip, I found it remarkable HRnetGroup had dominated its market way before its IPO – beating other more prestigious recruitment companies. 

I admit, HRnetGroup isn’t the best Singapore company out there. But they have built a somewhat “cash flow recurring” business, which not many people may know. I found HRnetGroup isn’t just doing recruitment. It has what’s missing for many recruitment companies – a massive flexible staffing business.

The thing is, flexible staffing allows companies to recruit contractors easily – whether it’s for a short-term project, or a temporary replacement to permanent hires. Plus, the company has over 54,000 contractors that companies can pick from. More importantly, HRnetGroup doesn’t even need to pay for their contractors.

Put it this way, when a bank hires a contractor from HRnetGroup, the bank pays the full salary, plus an additional fee to HRnetGroup for hiring the contractor. This makes it an asset-light business – no need to build factories, nor invest in expensive software and technologies. HRnetGroup simply grows their headcount, in order to grow their profits. Right now, the flexible staffing segment contributes at least 43% of HRnetGroup’s total gross profits. And that grew from a 32% contribution over the last few years. There’s no need for heavy equipment and services. And because of their strong reputation, their top clients have been very sticky, for an average 19 years. In fact, its top 10 clients contribute 21%.

HRNet Group’s Resilient Business Model

HRnet Group shares have yet to recover to its IPO price of S$0.90 per share. This is largely because of two problems. First, COVID-19 pandemic forced an unexpected sell-off in its shares. Though it rebounded quickly to trade above S$0.70 per share, what annoyed the market was analysts’ recent downgrade of HRnet Group. Analysts weren’t too optimistic with Singapore’s economy outlook and thus its labour market. The thing is, most recruitment businesses are cyclical. For example, in the US, Robert Half profits shrunk to only $37 million during the global financial crisis. 

While economic data is important, it may not be predictive of a company’s ability to produce profits and dividends, as long the company has a durable competitive advantage. Even in a weak environment, a strong business can continue to stand like a strong bamboo shoot, as long as it has a sound business model. HRnet Group is different. 

It’s much more resilient because Singapore for some reasons has a very resilient labour market – it has always been tight and doesn’t experience a huge drop in their business during a severe crisis. In fact, HRnet Group recovered very fast and for some reasons, Singapore’s market is much more resilient compared to the US labour market. This allows HRnet Group to ride on a very strong tailwind in the labour market. 

A Fortress Balance Sheet for Safety

HRnet Group’s fortress balance sheet further bulletproof against economic crisis. Today, it has $262 million of cash, more than half of their total assets. It has no debt. And most of its liabilities are simply salaries, commissions owed to their recruiters and contract staff. 

Clearly, I don’t think it has a debt problem.

And since HRnet Group doesn’t require heavy capital investments to run the business, its massive free cash flow can be used to pay out a generous dividend. This is also reflected in its high ROE. Over the last six years, it has produced an average 16% ROE, which is much higher than the average Singapore companies.

Its revenue has been growing by around 18% a year since 2020 to the current S$611 million. Its net income has also grown in line with its revenue to S$67 million, a 44% increase from 2020. Its net margin is consistently over 10% in the past decade. 

Its free cash flow has been consistently above its net income. This means the company can pay out a strong dividend for investors. Since its IPO, it has always been paying out a dividend, with a payout ratio of around 50% to 55%. 

At the moment, the stock pays a 5.2% dividend yield.

My Concerns & Risks

Its relatively small size means it may not have the strong financial power to expand aggressively overseas. Many Singapore companies fail to grow beyond their local shores. Another problem is if HRnet Group fails to work with a good joint venture partner overseas in the long-term. After all, the recruitment business is a localized business that requires extensive local knowledge.

The good news is, if things really get bad, HRnet Group has a healthy balance sheet that it could ride through some of the most brutal economic storms. With its cash position, it could cover about four years of net profits. Which means, even if HRnet Group makes losses over the next four years, it could continue to sustain its dividends if it chooses to.

My Final Thoughts

HRnet Group shares are beaten down for all the wrong reasons – weak outlook, expected GDP slowdown and a weak labour market. If you look at Singapore’s unemployment rate in the previous crisis, the highest it ever rose was close to 5%. Even then, this is still low versus the US at 10%, during the global financial crisis.

I believe our Singapore government is well equipped to provide a healthy labour market, whether in a crisis or not. Moreover, Singapore manages their unemployment rate very well. 

With its asset-light business model and strong cash flow generation, I believe that HRnetGroup has the potential to maintain its dividend payment for the long term. 

HRNet Group is in my Top 10 Singapore Dividend Stock Picks for 2024

 

HRNET Group Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #2: Luxury Retail Giant (The Hour Glass)

Ticker: AGS
Market Cap: $1 billion
Current Dividend Yield: 5%

The Hour Glass is a luxury watch retail group and owns boutique stores across the Asia Pacific region, including Singapore, Malaysia, Thailand, Vietnam, Japan and Hong Kong. It sells luxury brands like Rolex, Patek Philippe, Audemars Piguet, Grand Seiko, Hublot, Richard Mille and so on. It also owns Watches of Switzerland, a watch retail company in Singapore that sells mid to high-end Swiss watches.

Source: tikr.com, dividendtitan.com

At a market of S$1 billion, is a mid-cap Singapore stock. And considered one of the biggest luxury retailers in Singapore. The group was founded in 1979 by Dr. Henry Tay and Dato Dr. Jannie Tay. Its first store was opened at Lucky Plaza in Singapore.

This Luxury Giant Rides on Asia’s Consumption Tailwind

McKinsey has said that Asia consumers will take up at least US$5 trillion worth of consumption, including luxury timepieces. With Asia consumption continuing to grow, this will set a tone for timeless pieces like watches. The thing is, luxury brands are highly defensive against inflation, since these brands can raise prices, with cost easily passed on to consumers. With Asia’s rising middle class as a big driving force for economies in the region, The Hour Glass should continue to ride the rising tide for luxury watches. In fact, Asia Pacific, including Australia and New Zealand accounts for more than 80% of the company’s total revenues. 

A Growing ROE

The Hour Glass’s revenues grew steadily from S$682 billion in 2013 and hit S$1.1 billion in 2023. Meanwhile, it more than tripled its net profits from S$56 million to S$174 million over the same period. What’s really impressive was, despite it being a distributor of luxury brands, it grew its net profit margins over the same period, from 8% to 15% in that same period. This also allowed it to produce at least 10% ROE, and in most recent years doubled its ROE to 22%.

Its balance sheet is healthy. It has S$206 million in cash, which more than covers its debt of S$84 million. Here’s the thing, a large part of its total assets are also held in inventories, which are very valuable luxury watches and these can have great value. It has good tangible assets that make it a steady business. 

What I’m Concerned 

Currency risk could be a major concern, since it imports its inventories overseas, which could be affected if foreign currencies strengthen against the Singapore dollar. Another is since The Hour Glass owns “brick-and-mortar” stores, higher rental and staff costs could impact its profit margins. This is because it has to deal with operating costs overseas, which could go up against the Singapore dollar. Another big risk is supply chain disruptions that could affect its distribution network and revenues. 

The Hour Glass has been a consistent dividend payer, having paid and grown from 2 cents per share all the way to 8 cents per share. At current shares, this gives it a 5% dividend yield. At best, this dividend stock could continue to grow its dividends. At worst? Perhaps collecting a 5% yield at current levels doesn’t seem like a bad idea at all.

My Final Thoughts

China’s re-opening for 2024 and beyond could be a big push as the second largest economy has removed its zero-covid policy restrictions. What’s more, Chinese consumers are spending more on luxury goods at home, which is a strong sign of a demand in luxury brands, especially watches. Now, In 2021, luxury goods in China sold over CNY 471 billion, which was 36% higher than the previous year. I expect this number to soar as China goes into full scale economic growth in the future.

The Hour Glass is in my Top 10 Singapore Dividend Stock Picks for 2024

 

The Hour Glass Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #3: A Highly “Capital-Efficient” Supermarket (Sheng Siong Group)

Ticker: OV8
Market Cap: $2.3 billion
Forward Dividend Yield: 3.9%

Sheng Siong is not exactly a cheap stock by any traditional investing standards today.  However, the business grew from a humble provision shop in Ang Mo Kio and worked its way to one of the biggest supermarket chains in Singapore – with at least a 21% market share.

Source: tikr.com, dividendtitan.com

I find Sheng Siong possesses safe, “low-risk” business qualities. The thing is, there are many problems Singapore companies face – lack of a large market, intense competition and especially, rising operating and rental costs. 

Sheng Siong survives and thrives because it has a niche. Sheng Siong’s past 10 years’ financial numbers are surprisingly good. Not because it’s in a well-protected, highly profitable industry. In fact, the opposite is true. Sheng Siong is right in the middle of an intense grocery market. 

To its left, there’s NTUC FairPrice that dominates every corner of Singapore. 

To its right, there’s Cold Storage. Sheng Siong simply cannot compete head-on with these big players. Both players have big financial backers: the Singapore government owns NTUC FairPrice. Meanwhile the Jardine Group, a rich family, owns DairyFarm’s Cold Storage. These giant operators are often anchor tenants in Singapore’s shopping malls. And occupy far larger shop spaces. What’s more, e-commerce is the annoying disruptor that tries to steal market share from supermarkets like Sheng Siong. 

A Supermarket Player Focused on One, Niche Customer

But here’s what I found fascinating. What this little-known supermarket chain lacks in size, it makes up for with its laser-focus on attracting a key customer – “time-strapped”, budget-conscious buyers. 

You wouldn’t find a Sheng Siong outlet even in a shopping mall. Yet, if you dive deeper, the 38-year-old supermarket chain is found almost in all HDB estates. Management doesn’t bother to fight with NTUC or Cold Storage.

Historically, Sheng Siong grew strongly over the past few decades. However, after the world reopened, the company faced some slowdown as consumers started going back to their “pre-Covid-19” normal lives. From 2020 to 2022, revenues dropped from S$1.4 billion, to S$1.3 billion. For now, it seems Sheng Siong is able to maintain its profits at about S$133 million.

Source: Sheng Siong financial statements, dividendtitan.com

Sheng Siong Defies the “Laws of Capitalism”

Despite slowing revenues, what I really like about Sheng Siong is it defies the “laws of capitalism”. You see, as a company grows more profits, it attracts more competitors, which drives down profit margins. And companies end up pouring more capital to maintain their profits. However, Sheng Siong takes market share from the nearby mini-marts and convenience shops. In my opinion, that’s Sheng Siong’s true competitive advantage. 

So far, this S$2.3 billion market cap supermarket chain has excellent capital-efficiency. Sheng Siong produces excess returns with the need for excess capital.  In fact, over the last few years, Sheng Siong’s return on equity (ROE) averaged at least 26%. Last year, its ROE was 29%.

Sheng Siong’s Clean, Healthy Balance Sheet

Its balance sheet makes life easy for any investment analyst – it’s clean and not filled with a bunch of “hard-to-understand numbers”. This reflects management’s approach to running a business. Sheng Siong carries no debt, has plenty of cash – S$290 million and continues to produce a free cash flow of close to S$200 million per year.

Sheng Siong’s ability to quickly buy products from suppliers, stock up on their outlets and sell them in just a month fuels its high free cash flow generation. That’s also how fast Sheng Siong’s inventories move. As it collects cash up front, Sheng Siong has a strong negative cash conversion cycle. This turns your inventories into an explosive rocket fuel for the business – highly cash generative.

BreadTalk (before it got privatized) also had one of the best cash conversion cycles. Both companies not only sell their products fast, they squeeze their suppliers by delaying payments to them. 

This allows Sheng Siong to quickly use its cash to buy more inventories to sell. While Sheng Siong produces strong cash flow, I don’t agree that Sheng Siong is a growth stock. Over the last few years shares have soared more than double. However, over the last year, shares fell about 4%, which I think the market is projecting a slowing business.

One big risk for Sheng Siong is its ability to expand overseas, especially China. I’ll tell you why. Grocery businesses, like properties, are a “localized” business. Management needs to fully understand local consumer buying patterns. Simple things like bringing the right products to sell is important. At the moment, its China’s business only contributed a mere 2.6% of total revenue of S$333.5 million. That’s why I find it hard to believe Sheng Siong will truly take off in China.

A Steady Dividend Payer

Throughout the years, Sheng Siong’s dividend payout ratio saw a decreasing trend and it hovered around 70%. This is a good sign as it shows that the company has grown profit to support its dividend payout. Its dividends have also been growing due to better cash generation from its business.

Source: Sheng Siong financial statements, dividendtitan.com

Its dividend of 6.25 cents per share in 2022 is higher than the dividend of 6.1 cents paid in 2021. Sheng Siong has proven that it is a cash flow generation machine, adding S$28 million to its coffer, with a reduced capital expenditure of S$8.6 million.

Source: Sheng Siong financial statements, dividendtitan.com

But most importantly for dividend investors like myself, it gives me comfort to know that its dividend is fully backed by the company’s cash flow.

What’s impressive, over the last ten years, Sheng Siong grew its dividends from 2.6
cents per share to 6.2 cents per share in 2022. That’s a 10% annual compounded
growth rate. I’m not sure about you but that’s impressive.

My Final Thoughts

Supermarket operators are all about convenience — and understanding customers’ buying patterns. Sheng Siong positions its stores, offers massive convenience to local residences and has a laser-focus on targeting budget conscious customers.

What’s more important is that it’s a homegrown brand. 

Sheng Siong is in my Top 10 Singapore Dividend Stock Picks for 2024

Sheng Siong Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #4: Buy a Safe Haven for Less Than a Dollar (Netlink Trust)

Ticker: CJLU
Market Cap: $3.3 billion
Current Dividend Yield: 6.2%

Source: tikr.com, dividendtitan.com

Let me start off with the facts. This company provides fibre cables to 1.5 million residential homes in Singapore, 52,000 non-residential premises. And is responsible for the passive fibre infrastructure network including ducts and manholes. This company was also a spin-off from Singtel Group back in 2017 – an “unwanted child” because of anti-competition regulations.

Netlink Trust is set up by the Singapore government to complete a national objective and it is collecting regulated income. In a way, distribution from the Trust is almost like collecting taxes. 

At a market cap of S$3.5 billion, Netlink Trust is the fabric of Singapore’s “Next Generation Nationwide Broadband Network”. The fibre network provides the infrastructure for ultra-high-speed internet access in Singapore. In the midst of a volatile stock market, central banks’ rate hikes and a global currency sell off, Netlink Trust comes across as a safe haven for income investors. 

The fact is, since IPO in 2017, the company has grown revenues from S$228 million in 2018 to S$377 million in 2022. Meanwhile, net profits rose from S$126 million to S$200 million over the same period. More than 90% of Netlink’s revenue is regulated. Out of that, about 80% of its total revenue comes from the regulatory asset base (RAB) framework. The RAB framework dictates how much Netlink Trust can charge per connection per month across its different segments of connection. 

In other words, Netlink Trust’s revenues are regulated by the government. This could add uncertainty when its pricing is up for review. The good news is, Netlink Trust’s pricing is calculated based on giving a reasonable return on capital for its investment, which also accounts for inflation. And inflation in Singapore keeps going up. This brings steady, higher pricing for Netlink Trust over the long term.

What’s the Investment Case Here?

The investment case for Netlink Trust is easy here. Netlink Trust has a well-capitalized balance sheet. This means, even though they carry S$732 million of debt, they have a far larger shareholders’ equity of S$2.6 billion. This puts the firm’s debt/equity ratio at a mere 28%. I would sound out a red flag if a firm has more than 120% debt/equity ratio. In Netlink Trust’s case, this is far, far from a default case. If Netlink Trust ever gets a credit rating, I know its financial position can easily pass off as an investment grade credit rating. 

Now, the lucky thing is, back in 2021, Netlink Trust has already refinanced most of their debt. I wouldn’t be worried if interest rates have gone higher. What’s more, the firm has also hedged their debt’s interest payment by using interest rate swaps – or what is known as a “fixed-for-floating interest rate swap.

A fixed-for-floating swap is an agreement between Netlink Trust and another company where they both swap their interest payments.

Instead of Netlink Trust paying a floating rate (e.g., SORA + interest margin) on their interest, this payment becomes a fixed rate every year, whether interest rates go up or down.

Netlink Trust isn’t a high growth company. But I’d argue it’s a big fish in a small pond, dominating 35% of Singapore’s residential fibre network. In its latest financial quarter results, Netlink Trust’s revenues grew 4.8% to S$98 million, net profits rose 11% to S$27 million. Its revenue grew at 3.3% a year (not the fastest growth, but steady) since 2019 to S$377.6 million in 2023. 

Its healthy results were driven by higher ancillary revenues, connections revenue and co-location revenue, though this was offset by lower Central Office revenue – a small segment. Its residential connection revenues still remained the biggest contributor of the Group’s revenue at 62%. 

Source: Netlink Trust financial statements, dividendtitan.com

Even though Netlink Trusts’ interest rates rose to 1.8%, up from 1.1% in the midst of a rate hike, this is substantially lower than many Singapore REITs whose average borrowing costs is around 2.5%. What’s more, Netlink Trusts’ interest coverage ratio has jumped to 27 times, up from 17.5 times over the previous year. This was mainly due to improved profits.

A Price That Will Not Stay Low Forever

Netlink Trust got listed in July 2017, at a price of S$0.81 per share. And it peaked at S$1.02 per share in May 2020 and November 2021. Today, shares trade just below S$0.90 per share, which is only 11% gains from its IPO price. Yet at the same time, revenues have grown 65% since IPO, profits have grown 58% and produces an average S$183 million of free cash a year (except its financial year ending March 2018 where it produced a negative free cash flow of S$53 million).

The market knows its resilient business model. I mean, one quick glance at Netlink Trust and you know it has a defensive business. The business trust has fallen 12% from its peak, but because of its resilient business model, low borrowing costs, higher interest coverage and ability to refinance debt comfortably, shares should recover as global economies recover from inflationary pressures.

Dividend Gusher Year After Year

The most important thing is, how sustainable are Netlink Trusts’ dividends? Over the last five years, Netlink Trust grew its distribution (a proxy of dividends) from 3.24 cents per unit in 2018 to 5.13 cents per unit in 2022.

Recall, Netlink Trust was only listed in July 2017. Based on its latest distributions, that puts Netlink Trust dividend yield at 6%. Not too bad. This dividend yield on your initial cost will go up over time. And the best part? Growing dividends from a highly defensive business is impervious to economic crisis.

Source: Netlink Trust financial statements, dividendtitan.com

The Big Risk You Need to Know

Unlike a REIT, fibre network, like ducts, manholes and fibre cables depreciate over time. This means, Netlink Trust will have to raise capital in the future to replace these depreciating assets. Since Netlink Trust pays out most of its profits as dividends, it could possibly raise money through rights issue to replace older assets. This is unlike a property where REITs hold valuable assets that appreciate over time.

The good thing is Netlink Trust’s assets have a long shelf-life – network assets are worth S$3.8 billion, with an annual depreciation of S$147 million a year. That’s an estimated 25 years of income producing assets.

Even if the economy plunges into a recession, it still has to collect fees from residentials, and companies. It could continue to raise fees, and on top of that grow their distribution. While a recession is hard to predict, the business model allows them to stay relatively safe from the onslaught of the market. 

My Final Thoughts

What I like about Netlink Trust is it acts like a bond – a highly defensive business model, growing dividends, and a steady rise in its revenues, profits and free cash flow. Perfect for the dividend investor. Today, Netlink Trust trades at 1.3x its book value, which is close to its 5-year average valuation. However, with Netlink Trust’s shares at S$0.86 per unit, it is giving us a distribution yield of around 6.2%, a very attractive yield given the safe and stable nature of its business.

Given that Netlink Trust is a regulated entity, we can see it as a utility. The access to the internet is now just as important to the access to electricity and water. On the other hand, a utility generally can only grow at a slow and reasonable pace. 

Netlink Trust is in my Top 10 Singapore Dividend Stock Picks for 2024

Netlink Trust Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #5: Getting into CapitaLand’s Most Overlooked Brand (CapitaLand Ascott Trust)

Ticker: HMN
Market Cap: $3.6 billion
Current Dividend Yield: 7%

Source: tikr.com, dividendtitan.com

Hospitality assets are cyclical. I mean, we saw how hospitality REITs got crushed during the pandemic when the world came to a stop? But CapitaLand Ascott Trust (CLAT) has remained resilient, diversified into student hostels and continued to grow its assets despite a higher interest rate environment.

CLAT has an interesting background. You know, the man behind Ascott is a visionary. 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. 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. 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). Today,

I’d say Ascott is a Singapore iconic brand. After the merger with Ascendas Hospitality Trust, CLAT sits at a market cap of $3.6 billion – a blue-chip Singapore REIT.

The Power of a Resilient, Hospitality Landlord

Today, CLAT has S$8 billion worth of property assets across the world – that’s 103 properties across 44 cities in 15 different countries. If there’s one thing to describe CLAT – it’s pure diversification.

Here’s the thing, CLAT’s assets are mostly freehold leases. This means its properties, especially in developed markets, will get more valuable over time. Put it this way, every time a land lease expires, REITs have to raise money – through bank debt and rights issues — to replace the asset and the land it sits on. With CLAT, you don’t have to worry too much about this.

CLAT is a resilient REIT. It suffered from the full force of the pandemic two years ago, had to cut dividends and saw revenues and profits fall for the first time. People couldn’t travel, which means no businesses for hotels and residential apartments. Instead of forcing people to fill up its hotel room, CLAT pivoted to a more defensive, long-term accommodation. Buying student accommodation assets was one such strategy. And it has worked so well for CLAT that it intends to have 25-30% of its assets in longer-stay accommodation in the future. It still maintains up to 75% of its assets in serviced residences and hotels – on the back of a travel recovery.

In its latest 3Q2023 business updates, Asia’s biggest hospitality and lodging trust financial results continued to soar as expected – gross profits were up 23%, and its average revenue per unit room (RevPAU) rose 17% as compared to a year ago. In fact, its RevPAU has surpassed its pre-COVID levels and now stands at an average room rate of S$154 (up from S$96 from a year ago) per room. CLAT is now riding on the back of a strong re-opening of the world.

I mean, I cannot imagine if companies stop sending people overseas for travel, or if people will ever stop travelling for holidays. Or students had to stop renting long-term accommodation. The world gets more interconnected, not only online, but physically too.

While there’s still uncertainty as the world just started to open up, there’s a huge potential as we put the pandemic behind us.

CLAT’s Robust War Chest — Firepower to Grow

While many Singapore REITS are cutting back on asset growth, CLAT is one of the few blue-chips that continues to grow its assets. For instance, last year CLAT said it will buy another three more lodging assets across major cities – Longdon, Dublin and Jakarta – for S$530 million. These deals are expected to grow CLAT’s DPU by another 2%. This not only shows its resilience, but also it has plenty of room to expand its portfolio.

CLAT’s gearing ratio only stood at 36%, has a low borrowing cost of 2.4% per year, and a comfortable interest coverage ratio of 4x. What’s more, CLAT has a robust war chest — $1.3 billion of funds, of which $375 million cash pile and the rest from banking facilities that can be drawn down at any time. CLAT has a healthy balance sheet.

My Final Thoughts

For a blue-chip REIT, its healthy balance sheet, well-diversified portfolio of hospitality and lodging assets and freehold land leases give it enormous room for more firepower – growing more assets. But that’s not the crucial part. CLAT has resumed its pre-COVID-19 dividend payout, and I expect its dividends to continue growing from here on.

CapitaLand Ascott Trust is in my Top 10 Singapore Dividend Stock Picks for 2024

CapitaLand Ascott Trust Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #6: How to Buy This Quiet Singapore Dividend Payer (Venture Corp)

Ticker: V03
Market Cap: $4 billion
Current Dividend Yield: 5.4%

Source: tikr.com, dividendtitan.com

Venture Corp is a major, Singapore-based electronics maker. Founded in 1984, this company hit its first billion-dollar revenue in 2000 — riding the trend of the tech wave in the late 1990s. Not many people know Venture Corp. But I’ll tell you, Venture makes a wide range of stuff. It produced the hottest technology equipment in the late 1990s — printing and imaging products, routers, barcode scanners, networking and communication products. The stuff that many Fortune 500 companies, including big telecom, semiconductor and consumer electronics products sell. It counts big brands — like Hewlett Packard as its customers.

How 40 years of Reputation Earned This Quiet Player an Electronics Maker “Powerhouse”

Venture Corp is an Original Equipment Manufacturer (OEM). Now, an OEM is a company who makes equipment and devices that are used in another company’s end products. Over the years, the company has transformed from just servicing electronics companies to being able to serve the healthcare, instrumentation and other industries. It works with its clients from the design stage, all the way to tooling and bringing their products to market.

For instance, Venture Corp makes Hewlett Packard’s printers. And at one point, it almost clinched a huge project with Philip Morris (seller of Marlboro cigarettes) to manufacture e-cigarettes. The fact is, Venture Corp doesn’t only sell in Singapore, but across all over the world in Asia.

Steady Revenues, Steady Profits

Venture Corp’s sales grew steadily from S$2.4 billion in 2011 and hit S$3.8 billion in 2022. At one point, it made S$4 billion in revenues in 2017. Over the last 12 years, its net income more than doubled from S$156 million to S$370 million. Venture has consistently achieved good profit margins in its business. This was despite not having the massive scale that some of its competitors have. So far, Venture grew its operating margins from 3% in 2014 to 10% over the recent years. High profit margins also boosted its return on equity (ROE), the rocket fuel of any company.

The company on average, produced S$213 million free cash flow over the past 10 years. And all that cash flow generated allowed Venture to sit on a huge pile of cash. I’d be sleeping soundly at night with this kind of balance sheet. That’s because it can safely pay all of its liabilities, and has more than enough to continue growing its business.

Source: Venture Corp Financial Statements, dividendtitan.com

Venture’s Dividends are Riding on a Tailwind of Internet Growth

As the world gets into the 5G revolution, Venture Corp is winning big. And its growth potential is huge. And having studied years of its annual reports, I’d say Venture Corp adapts well in today’s fast-moving world. Right now, it positions itself in life science genome, artificial intelligence, “Internet of Things” etc. The latest trends people are talking about. The company is transforming itself. It’s even moving into the electric vehicle battery industry.

For example, the 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.

30 Years of “Uninterrupted” Dividends

Venture is one of the few Singapore giants that has paid 30 years’ worth of dividends. In Singapore, that record is impossible due to its short history as a nation. Yet, this company has done just that.

Since its listing in 1992, Venture has paid dividends every single year. More impressively, in recent years, the company has been able to maintain or even raise its dividend over time. It pays an average 50 cents dividends per share each year. Last year, it rewarded shareholders with a 75 cents per share dividend.

Management is aligned with shareholders, though it does not have a fixed dividend policy. They have maintained this perfect track record. All from its cash flow generative business. This is also because the company has zero debt and is flushed with cash – S$928 million. As a whole, Venture Corp has paid out over S$2.3 billion dividends since 1992 till date.

Venture Corp Financial Data

Source: Venture Corp Financial Statements, dividendtitan.com

One Big Concern – Supply Chain Costs

The company has the firepower to survive a possible slowdown in the global economy. However, Venture has supply chain risks. For one, most of its manufacturing facilities are located in Malaysia. Out of its 18 facilities globally, 15 of them are located in Malaysia – in the state of Johor and Penang. This exposes the company to political, currency and social risks with Malaysia.

Moreover, as many global companies are shifting manufacturing sources to other countries like Vietnam, Venture may lose out if the supply chain is moved far away from its facilities. This could raise higher operating costs for the company.

My Final Thoughts

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, it provides a certain level of stability and safety to its dividends. A perfect fit for a dividend portfolio.

Venture Corp is in my Top 10 Singapore Dividend Stock Picks for 2024

Venture Corp Financial Data

Source: tikr.com, dividendtitan.com

Singapore Dividend Stock #7: A Victim Stock with a 6.6% Yield (Hong Kong Land USD)

Ticker: H78
Market Cap: US$7.3 billion
Current Dividend Yield: 6.6%

Hong Kong Land is a major developer in Hong Kong, which focuses on Hong Kong office properties. They have joint venture projects in Singapore residential projects.

Source: tikr.com, dividendtitan.com

What’s different from other landlords is this landlord and developer focus primarily in Hong Kong Central, which is similar to our CBD. Hong Kong Land shares have fallen over the past years and only gotten really interesting recently.

The thing is, most of their profits come from rent. Investment properties are their cash cow, which allows them to collect regular rental income, and pay out regular dividends. Hong Kong properties include these:

An Income Machine From High-Quality Investment Properties

Now, what I like is these are high-quality properties that are close to full occupancy, which is very different from the US commercial sector. Hong Kong is a densely populated city. This makes demand for physical space very strong, and also resulting in a lack of supply.

Most of its tenants are in financial services, legal, property and trading. These are relatively high margin businesses, which are knowledge-focused. Hence, many of such companies reside in Hong Kong central and can largely afford the high rental rates from Hong Kong Land.

Shares have tumbled largely because of the weak Hong Kong market, and also the higher interest rates. Recall the Hong Kong dollar is pegged to the US dollar. This also means that Hong Kong interest rates track closely to US interest rates.

What’s interesting is Hong Kong Land doesn’t have a lot of debt, and because it’s a landlord that collects rent, it already paid off most of its debt over the past decades. That’s why even though it has US$7.8 billion of debt, it has more than US$27 billion dollars’ worth of assets (see balance sheet below).

Hong Kong Land also has property development projects listed as associates and joint ventures in its balance sheet – worth US$8.9 billion. These can contribute capital gains and can give revenues a short-term boost.

What’s different from Singapore REITs, it’s not highly leveraged and not afraid of the higher interest rates. This makes it a resilient dividend stock. Over the past couple of years, Hong Kong Land has paid regular dividends year after year. Gearing ratio is around 17%, which is highly manageable.

Hong Kong Land’s “Dirt Cheap” Valuations

The problem is the market has been severely mispricing Hong Kong Land’s assets. I think it’s interesting today because its valuation is dirt cheap. In fact, since 2013, the office property landlord continued to pay consistent dividends, even when Hong Kong went into a lockdown mode during the COVID-19 pandemic. The thing is Hong Kong Land, Hong Kong developers are usually trading at discount. But now the discount is even deeper, this makes its margin of safety much wider.

What I don’t like about Hong Kong Land is it could continue to have shares trading nowhere. While we can’t expect much capital growth in its stock, the quiet force behind its dividends is its massive, high-quality assets that could power the income over the long term.

Now, another big reason why Hong Kong Land shares are trading at discount is because of its development projects in China. The market just doesn’t like any stocks whose businesses have an exposure to China — whether in fashion, properties, consumer, healthcare and so on. When the market hates a country, all hell just breaks loose.

My Final Thoughts

Don’t expect huge growth but because it’s listed in Singapore, this makes it a good addition to the income portfolio strong in Singapore portfolio. Unlike Singapore REITs that pay out most of their profits as dividends, Hong Kong Land has a low payout ratio and that allows it to sustain their 6.6% yield today.

Hong Kong Land is in my Top 10 Singapore Dividend Stock Picks for 2024

 

Hong Kong Land Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #8: How to Buy Singapore’s Leading Defence Contractor (ST Engineering)

Ticker: S63
Market Cap: $12 billion
Current Dividend Yield: 4%

At a market cap of S$12 billion, ST Engineering is one of the Singapore blue-chips. And a steady dividend payer.

Source: tikr.com, dividendtitan.com

ST Engineering has traced its roots back to the 1960’s when its main focus was to support the needs of the Singapore Armed Forces (SAF). This industrial heavyweight grows by its careful use of capital, allocated across three big business segments:

  1. Commercial aerospace: maintenance, repair and overhaul (33.1% of revenues)
  2. Urban solutions and satcom (19.6% of revenues)
  3. Defense technology (47.3% of revenues)

Recently, it has been selling down non-core assets to focus on these businesses. So far, this helped maintain its capital-efficiency. And allowed it to achieve a five-year average earnings growth rate of 13%.

This Industrial Giant’s Competitive Advantage

ST Engineering’s core business is defense technology, which makes up 47% of its revenues. This provides the company with good income stability. Meanwhile its leading position in aircraft maintenance, repair and overhaul helps support profit growth as travel re-opens. Unlike SIA Engineering, ST Engineering has been ranked the world’s largest independent (non-airline affiliated) MRO service provider for more than 16 years. This strong reputation allows ST Engineering to maintain repeat customers for its business.

In 2022, its financial results were mixed. Revenues were up 17%, operating profits grew 2.9%. But net profits were down marginally by 4.2%, as it deals with rising interest costs. However, having said that, ST Engineering’s operations have been steady. Without considering COVID-related government support, operating profits more than doubled from 2020 to 2022. Its net profit has also increased from S$182 million to S$535 million during the same period. The book order for ST Engineering is at a record level of S$2.3 billion, highlighting good prospects in the short term. Over the last 12 months, it produced S$1.2 billion of operating cash flow, while spending about S$700 million capex, which is reflected by its steady, positive free cash flow generation.

Source: ST Engineering financial statements, dividendtitan.com

So far, I expect ST Engineering to manage its debt well. It holds plenty of cash and I’m not concerned with higher interest payments. Last year, the company secured new contracts of S$11.7 billion, which brought its total contracts to S$27.5 billion – much higher than it was in 2022. This provides ST Engineering with massive income visibility.

The Power of a Strong “Singapore” Brand

The thing is, its ability to attract new contracts is driven by its strong “Singapore” branding that allows it to sell defense products globally. In fact, as Singapore’s main defense contractor, ST Engineering rides on the Singapore brand to sell many of its military products and services – including armoured vehicles and weapons. ST Engineering also builds satellite equipment. For example, it owns iDirect, the world’s biggest VSAT systems manufacturer with a 32% market. Once these systems are installed, its clients are unlikely to switch given the huge disruption risks.

My Concerns & Risks

One concern is many of ST Engineering’s airline clients are still recovering from the pandemic. This business segment might see slower growth, although I expect growth to eventually recover to its pre-COVID levels. The great thing about ST Engineering is its willingness to sell off its non-profitable, non-core assets. But what I don’t like is its acquisitive nature of the business – it regularly buys businesses to grow its operations. This is risky if the acquisition doesn’t turn out well.

A Steady Dividend Payer

I expect ST Engineering to maintain its strong revenue visibility over the next few years. ST Engineering’s latest 2022 ROE maintained at 22%. Pretty impressive. Not many Singapore blue-chips can even hit 10% ROE.

Last year, St Engineering paid dividends of 16 cents per share, which is a current 4.1% yield. Not too bad. ST Engineering should maintain dividends of 16 cents for 2024. ST Engineering’s dividend payout ratio fluctuates between 83% to 94% over the last five years. The dividend payout ratio is a financial metric used to determine the sustainability of a company’s dividend payment program. It is the amount of dividend paid to shareholders relative to the total net income. The rule of thumb for payout ratio should be less than 100%.

Source: ST Engineering financial statements, dividendtitan.com

I am comfortable with this dividend blue chip if the payout ratio does not exceed 100%, which means it does not need to take on debt to finance its dividend.

My Final Thoughts

ST Engineering has a diversified business that spans across industries. This provides a steady source of revenue, which translates to consistent dividends. ST Engineering is one of the few companies in Singapore that have been paying a consistent dividend for more than two decades. Therefore, the consistency of dividend backed by profit from the company gives me confidence that ST Engineering will continue to be a strong dividend stock in the long run.

ST Engineering is in my Top 10 Singapore Dividend Stock Picks for 2024

 

ST Engineering Financial Data

Source: tikr.com, dividendtitan.com

 

Singapore Dividend Stock #9: A Financial Thoroughbred (OCBC Group)

Ticker: O39
Market Cap: $57 billion
Current Dividend Yield: 6.2%

Source: tikr.com, dividendtitan.com

Of all three Singapore banks, Oversea-Chinese Banking Corporation has the oldest history, tracing back more than a century. OCBC was formalised during the Great Depression in 1932 when three Chinese banks – Chinese Commercial Bank Limited (1912), Ho Hong Bank Limited (1917) and the Oversea-Chinese Bank Limited (1919) merged. These three banks were founded to serve the Chinese community in Southeast Asia. However, they struggled in the first 20 years of operation, facing crises such as a bank run during the early years. However, the Great Depression and the conquest of Manchuria by the Japanese forced the three banks to merge to sustain their operation.

Mr Lee Kong Chian was instrumental in the merger as the vice-chairman of the newly formed OCBC. Today, Mr Lee Kong Chian is referred to as the founder of OCBC due to his immense contribution to the bank’s success. That’s not all, OCBC was also a key starting point for many future banking tycoons in the region. Both the founders of Malayan Banking, Tan Sri Khoo Teck Puah, and Public Bank, Tan Sri Teh Hong Piow, started their careers with OCBC.

In 2022, the bank produced S$11.6 billion in revenue. Looking back, OCBC was able to grow its revenue by an average 3.5% a year over the past decade. During that same period, it grew net profits by 4.9% a year, and most of that growth translated into higher dividends for shareholders.

Unlike many US banks that have transformed into mostly investment banking and investment trading businesses, OCBC is still a traditional commercial bank. A large part of its business comes from loans. These loans are lent to various industries, with mortgages and construction loans accounting for about 51% of its total loan book. This also means OCBC is correlated with the property sectors in its key markets like Singapore, Malaysia, Indonesia and Greater China. Such exposure is quite typical among banks in the region.

Having said that, OCBC has been diversifying from property loans for many years. Today, a large portion of its income also comes from its insurance business. The thing is, OCBC is the major shareholder of its listed insurance subsidiary, Great Eastern Holdings – a major insurer. Its insurance business contributed 10% of its total revenue to the group in 2022. This is a big difference for OCBC, compared to its peers UOB and DBS Group. And this diversification gives OCBC a more stable revenue stream and reduces its exposure in the property sector.

Tapping on The Growth of China

With a strong position in Singapore and Hong Kong, OCBC has a strategy of focusing on capturing Asia’s rising wealth. And the greatest wealth that is being created right now is from Greater China. This means OCBC wants to attract very wealthy individuals through its key hubs like Singapore, Hong Kong and Dubai.

By the end of 2022, OCBC was managing close to $260 billion of assets under management (AUM) within its wealth management business. Therefore, I expect its wealth business to continue to grow strongly over the next few years.

Why Dividends Will Continue to Grow

OCBC’s stable banking should allow the company to maintain a strong stable dividend for investors going forward. Due to the rising interest rates over the past few years, OCBC has been enjoying an increase in its net interest margin since 2021. OCBC targets a 50% payout ratio. This is conservative, in my view. And based on its 2022 dividend, the stock is giving a yield of 6.2% at the moment.

Source: tikr.com, dividendtitan.com

Over the past 14 years, OCBC has been able to grow its dividend at 6.5% annually. And apart from the COVID-19 pandemic, OCBC has never dropped its dividend since 2008. It is interesting to note that even during the global financial crisis in 2008, OCBC was able to maintain its dividend payout as well. That gives me confidence that OCBC has the financial strength to maintain and even grow its dividend over time.

Oversea-Chinese Banking Corporation (OCBC) is in my Top 10 Singapore Dividend Stock Picks for 2024

OCBC Financial Data

Source: tikr.com, dividendtitan.com

Singapore Dividend Stock #10: ASEAN’S Pillar of Wealth (UOB Group)

Ticker: U11
Market Cap: $47 billion
Current Dividend Yield: 6%

Source: tikr.com, dividendtitan.com

Some of the greatest businesses are created during troubling times. This is true for United Overseas Bank. The bank was founded by seven Sarawak-based businessmen, led by Datuk Wee Kheng Chiang, during the Great Depression in 1935. While the world’s economy was struggling, Datuk Wee had a vision of forming a bank to serve the merchant community in Singapore. Thus, the bank was founded as United Chinese Bank.

Like great wine, great companies need time to grow and mature. By 1965, the bank finally got the chance to venture beyond Singapore, into the Hong Kong market. However, to avoid confusion with the local United Chinese Bank in Hong Kong, the bank formally changed its name to its current form, United Overseas Bank. And eventually got listed in 1970 on the Joint Stock Exchange of Singapore and Malaysia.

Most recently, it acquired Citibank’s ASEAN business. According to management, it expects to add an additional 1.3 million customers from the acquisition and a 20% increase in assets under management (AUM) for its Thailand and Malaysia business. Its total wealth management AUM is up 11% in 2022 to S$154 billion. Compared to the S$48 billion of AUM in 2010, UOB grew at 10% per year in its wealth management AUM over the past 12 years.

Now, the key turning point that transformed UOB to become one of ASEAN’s largest banks was acquiring Overseas Union Bank (OUB) in 2001. The S$10 billion merger solidified UOB’s standing in the financial industry of Southeast Asia.

Today, UOB’s retail banking business is a core segment, which contributes 30% of its operating profits in 2022. From its S$320 billion worth of loans, half comes from outside Singapore.

Unlike many global banks that ventured into higher-risk businesses, UOB still produces the majority of its revenue from interest income. More than 72% of its total income is still interest income earned from traditional loans like mortgages, business and personal loans.

But what I really like about banking is its business model is a “boring business”: borrow other people’s money, and invest it in longer-term, higher yielding assets like loans and investments.

Over the past 88 years, UOB has weathered many economic crises. Yet it maintained profitability most of the time. In 2022, the company hit a record net profit of S$4.5 billion, which was up 18% from a year before. Although its profits don’t grow as fast as a tech company, I think growing at 6% a year for the past five years is still respectable. Moreover, its business has been stable, and that’s more important to dividend investors like myself.

But what’s really comforting is, despite UOB’s massive asset size, its return on equity (ROE) has also been consistent at an average 11% since 2018, a sign of a resilient business model.

UOB mercilessly cuts costs. And a good way to measure the cost structure of a bank is using the cost-to-income ratio. It’s simply a measure of total operating costs divided by total income it generates. The lower the ratio, the better. UOB has kept its cost-to-income ratio around 44% over the past five years. This is much lower than most banks in the US, UK, Japan and even Hong Kong.

But what made me feel safe and confident with UOB is its strong emphasis on risk management over the past few decades. The bank focused on having a strong balance sheet, maintaining high asset quality and keeping its non-performing loan ratio low.

The Dividend Machine

UOB is one of the few companies in Singapore that pays consistent dividends over the last two decades. On top of that, the group continues to raise its dividends as earnings improve as well. This is also a strong sign of a hallmark of financial excellence. And would continue well into the future. Going forward, the bank is expected to pay out half of its profit as dividends. And from its latest dividend, the company has a dividend yield of around 4.7%, which is higher than its long-term average of 4% yield.

Source: tikr.com, dividendtitan.com

My Final Thoughts

I believe that UOB can continue to grow its dividend even more over the longer term. This is because, since the global financial crisis in 2008, many global banks scaled back on their Asian presence, especially in the wealth management sector. That gap has been filled by the major Singapore banks, including UOB in the past decade.

United Overseas Bank is in my Top 10 Singapore Dividend Stock Picks for 2024

 

UOB Financial Data

Source: tikr.com, dividendtitan.com

 

My Final Thoughts

I‘ve worked in the finance industry as a fixed income analyst. From analzying high-yield bonds, to managing one of Singapore’s largest money market funds, advising private clients on their investment portfolios has taught me many invaluable lessons.

The biggest one: no one will look after your money better than you will. And only you can take the required action to achieve your financial goals. After all, what’s being sold by banks may not always be in your best interests. Whether you’re investing in complex financial instruments, stocks, or bonds. Many bankers don’t truly understand these financial products.

Of course, you don’t have to do all the due diligence by yourself. Reading my Top 10 Singapore Dividend Stock Picks 2024 is one great way to get started.

Your money, your future is knowing enough to make an informed decision about growing your wealth.

I hope you enjoyed the guide. Drop me an email at willie@dividendtitan.com to share with me your favourite stock pick in the guide.

Sometimes, investing can be simple.

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