With prices falling so much in the last few weeks, there are a lot more opportunities now as compared to a few months back. One of Warren Buffett's famous quote is "It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price" and for simplicity, let's just assume the companies in the STI components are wonderful and evaluate if the prices are fair now. lol.
Anyway, I took some time to compile the dividends declared for FY 2019 for each STI components and make some assumption to see if they would really be a good buy/fit for our portfolio since our goal is to build one with a 5% dividend yield.
We all know that all the businesses/companies have been impacted by COVID-19, the oil price war or whatever other reasons, hence their revenue/profit is bound to decrease as compared to last year. Hence, I assumed that the dividends will be cut by 10%, 15%, 20%, etc.
Did the top few companies turn out to be a surprise to you? I will just provide a quick commentary/opinion on the top 3 companies.
1. Singtel @ 6.21% and 5.59% (10% dividend cut)
My guess is Singtel will highly likely cut its dividend... Firstly, Singtel's dividend policy states that "Barring unforeseen circumstances, it expects to maintain its ordinary dividends at 17.5 cents per share for the financial year ending 31 March 2020."
Secondly, there is a significant decrease in net profit due to operating losses at Airtel and lower contribution from Telkomsel amid aggressive price competition in India and Indonesia as well as an exceptional gain from the divestment of units in NetLink Trust.
Lastly, with news like this - Singtel freezing wages of all staff this year, except for operational and support workers, it is hard to imagine that they will not be cutting their dividend. On the bright side, even at this price, the possibility of getting more than 5% dividend yield is still pretty high.
2. SPH @ 5.88% and 5.29% (10% dividend cut)
I would say the probability of SPH cutting dividend is much higher than Singtel and the following 2 charts from their dividends history will explain it all.
SPH has been cutting dividends since 2015. If you think this time it will be different, let's look at the next chart.
The dividend paid out in FY 2019 has a payout ratio of 133%. It is simply unsustainable and it will only be heading in one direction...
3. DBS @ 5.85% and 5.27% (10% dividend cut)
My guess is DBS will most likely not cut its dividend. The decision to raise their dividends back in 2018 was a prudent one and the CEO, Piyush Gupta said, "The significant increase in dividends reflects the quality of our earnings, the strength of our balance sheet and the improved returns we are generating for shareholders". Although the Fed is cutting the interest rate which will have an impact on the banks' revenue (lower), the payout ratio is still pretty comfortable (~50%) and I don't believe the CEO would want to eat his own words so soon.
You can make a copy of the spreadsheet here and play with it. Note that the prices are static and are as of 11th March 2020.
As for the rest of the companies in the STI components, you can decide if they are wonderful/fair companies at a wonderful/fair price :)
Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right --> Unfortunately, you can't see it on mobile.)
Anyway, I took some time to compile the dividends declared for FY 2019 for each STI components and make some assumption to see if they would really be a good buy/fit for our portfolio since our goal is to build one with a 5% dividend yield.
We all know that all the businesses/companies have been impacted by COVID-19, the oil price war or whatever other reasons, hence their revenue/profit is bound to decrease as compared to last year. Hence, I assumed that the dividends will be cut by 10%, 15%, 20%, etc.
Did the top few companies turn out to be a surprise to you? I will just provide a quick commentary/opinion on the top 3 companies.
1. Singtel @ 6.21% and 5.59% (10% dividend cut)
My guess is Singtel will highly likely cut its dividend... Firstly, Singtel's dividend policy states that "Barring unforeseen circumstances, it expects to maintain its ordinary dividends at 17.5 cents per share for the financial year ending 31 March 2020."
Secondly, there is a significant decrease in net profit due to operating losses at Airtel and lower contribution from Telkomsel amid aggressive price competition in India and Indonesia as well as an exceptional gain from the divestment of units in NetLink Trust.
Lastly, with news like this - Singtel freezing wages of all staff this year, except for operational and support workers, it is hard to imagine that they will not be cutting their dividend. On the bright side, even at this price, the possibility of getting more than 5% dividend yield is still pretty high.
2. SPH @ 5.88% and 5.29% (10% dividend cut)
I would say the probability of SPH cutting dividend is much higher than Singtel and the following 2 charts from their dividends history will explain it all.
SPH has been cutting dividends since 2015. If you think this time it will be different, let's look at the next chart.
The dividend paid out in FY 2019 has a payout ratio of 133%. It is simply unsustainable and it will only be heading in one direction...
3. DBS @ 5.85% and 5.27% (10% dividend cut)
My guess is DBS will most likely not cut its dividend. The decision to raise their dividends back in 2018 was a prudent one and the CEO, Piyush Gupta said, "The significant increase in dividends reflects the quality of our earnings, the strength of our balance sheet and the improved returns we are generating for shareholders". Although the Fed is cutting the interest rate which will have an impact on the banks' revenue (lower), the payout ratio is still pretty comfortable (~50%) and I don't believe the CEO would want to eat his own words so soon.
You can make a copy of the spreadsheet here and play with it. Note that the prices are static and are as of 11th March 2020.
As for the rest of the companies in the STI components, you can decide if they are wonderful/fair companies at a wonderful/fair price :)
Do like any of the following for the latest update/post!
1. FB Page - KPO and CZM
2. Twitter - KPO and CZM
3. Click here to subscribe using email :)
4. Instagram - KPO_and_CZM (Did you see those delicious food photos to the right --> Unfortunately, you can't see it on mobile.)
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