• Do not ignore high dividend stocks
• STI average yield of 3.9%
• Consistent and rising trend

Flight to Quality and Safety

Most equity markets have erased gains for the year following uncertainty over escalating trade tensions and higher tariffs. In the current risk off environment, some investors have been gravitating towards higher dividend yielding blue chips.

The Straits Times Index fell 6.2% YTD to this year’s low in early July 2018. Since then, the index has recovered some grounds and is now up 4.6% from recent low in July. This trend is also aptly captured in the banking sector, where the average price decline was -2.7% in Jul, but stocks have rebounded and are currently up an average of 6.5% from recent lows.

This is similarly seen for most of the STI 30 stocks. At current valuation, the STI is trading at 13.4x FY18 and 12.4x FY19 earnings, with price-book of 1.1x and dividend yield of 3.9%.

Although the SGD has weakened in recent months against the USD to current levels of 1.368, over a 5-year period, the average is fairly stable at around 1.34. With a stable SGD and healthy divided of 3.9%, it warrants a re-look at some of the high dividend yielding stocks.

Christmas Came Early…

For this round of 2Q18 corporate results, several Singapore companies dished out higher and special dividends.

• Singapore Exchange changed its dividend policy from base dividend of 5 cents per quarter to 7.5 cents per quarter or 30 cents per year.
• Keppel Corporation raised its interim dividend from 8 cents to 10 cents together with a special dividend of 5 cents.
• Venture Corporation dished out its first ever interim dividend of 20 Cents.
• DBS declared 60 cents versus 33 cents previously, while UOB is paying out 50 cents versus 35 cents previously.
• OCBC declared a higher dividend of 20 cents versus 18 cents previously.

Ocean 11

We combed through our coverage list and selected high dividend stocks based on several factors including consistent and sustainable dividends in the past five years, dividend yield of >3%, and with same or higher dividend payout projected for FY18 (please refer to Exhibit 1 for more information).

From our coverage universe, we identified 11 stocks that met our stipulated conditions. Of these, 10 are BUY-rated, with the exception of SATS Ltd which is currently HOLD-rated.

NetLink NBN Trust has a short trading history since it was listed in 2017, but we have opted to include NetLink NBN Trust as it is a defensive company with the potential for good, consistent dividend payout. About 90% of its revenue is based on long-term contracts. At current price, the dividend yield is 6.0%. From the list, 10 stocks are BUY-rated and these are CapitaLand, DBS, Frasers Centrepoint Trust, Mapletree North Asia Commercial Trust, Singapore Telecommunications, NetLink NBN Trust, Singapore Exchange, Singapore Technologies Engineering, SATS, United Overseas Bank and Yangzijiang Shipbuilding Holdings Ltd.

Source: OCBC Research - 8 Aug 2018