Dividends are a widely coveted source of income for many investors and who can blame them? After all, a well-selected dividend share can mean years of rising and sustainable income. But, for many investors, in their quest for those coveted dividend checks, they cast their eyes only on a share’s dividend yield. That can be a dangerous endeavour as a share’s yield alone, tells us nothing about how reliable or stable its dividend is. While it’s certainly not the sole criterion (or even the most important one) in trying to find reliable dividends, a strong balance sheet can go…
Dividends are a widely coveted source of income for many investors and who can blame them? After all, a well-selected dividend share can mean years of rising and sustainable income. But, for many investors, in their quest for those coveted dividend checks, they cast their eyes only on a share’s dividend yield.
That can be a dangerous endeavour as a share’s yield alone, tells us nothing about how reliable or stable its dividend is.
While it’s certainly not the sole criterion (or even the most important one) in trying to find reliable dividends, a strong balance sheet can go some ways in protecting future pay-outs.
A company carrying a strong balance sheet with low or no debt has a greater ability to weather adverse industry-specific or general economic conditions without running into financial troubles. In addition, the net cash balance can also give it leeway in maintaining dividends while waiting for business to pick up.
Currently, the Straits Times Index (SGX: ^STI) has a dividend yield of around 2.6% according to data from the index tracker, the SPDR Straits Times Index ETF (SGX: ES3). With that in mind, let’s look at three blue chips with a strong balance sheet and yields that are higher than the market average.
Singapore Technologies Engineering (SGX: S63), or ST Engineering for short, is an engineering-based company with four business arms: Aerospace; Electronics; Land Systems; and Marine. The company paid out S$0.168 per share in dividends last year, giving it a historical dividend yield of 4% based on its current share price of S$4.18.
More importantly, ST Engineering’s latest second quarter results showed that it had S$1.71b in cash with only S$1.36b in total debt. The company would be releasing its third quarter results after the market closes today, and investors can check up on changes in its balance sheet.
Next up, we have Singapore Exchange (SGX: S68), operator of the Mainboard and Catalist stock exchanges.
The company has been busy lately trying to expand its business: there are plans to enter the electricity futures market in Asia and to develop the commodity derivatives market in China and Singapore. In addition, SGX will also be launching Asian forex futures from 11 Nov onwards.
The company’s sales and profits have shrank a little over the last five years, so investors might be happy to see revenue and profits grow by 15% and 24% respectively compared to a year ago in its latest first quarter results.
SGX’s latest balance sheet shows it carrying S$863m worth of cash with zero debt. At its current price of S$7.28, the company has a dividend yield of 3.8% based on its full-year dividends of S$0.28 per share for the financial year ended 30 June 2013.
Finally, we have SIA Engineering (SGX: S59). The company, a subsidiary of Singapore’s flagship carrier Singapore Airlines, provides maintenance, repair, and overhaul (MRO) services to more than 85 airlines around the world.
At S$5.07 a share, it carries a dividend yield of 4.3% based on its full-year dividends of S$0.22 per share for the financial year ended 31 March 2013. The company’s latest first quarter financials showed a cash balance of S$629m, with debt of only S$9m.
The company will be reporting its second quarter earnings after the market closes today and investors can know if it has managed to improve on its performance in the first quarter, where it suffered minor year-on-year declines in both quarterly sales and profits.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.