Three Recession-Proof Dividend Shares

The Great Financial Crisis of 2008-2009 was a painful experience for many. The Straits Times Index (SGX: ^STI) for instance, fell by more than 62% from a pre-crisis high of 3,876 points in Oct 2007 to a low of 1,457 in March 2009.

But, as bad as the crisis was, it has managed to provide something incredibly important for investors – data points for reference on how resilient a company’s business is in times of an economic recession. With this in mind, investors who are on the hunt for companies that are able to maintain or even grow their dividends through booms and bust can look back on history for direction.

Here are three shares that have managed to maintain or grow their dividends through the Great Financial Crisis.

1. Oversea-Chinese Banking Corporation (SGX: O39)

Year Dividends per share (Singapore cents)
2006 23
2007 28
2008 28
2009 28
2010 30
2011 30
2012 33
2013 34

Source: S&P Capital IQ

OCBC would deserve special mention here for maintaining its dividends throughout the crisis-years. 

As a bank, while many of its Western peers had to either drastically reduce or completely remove their dividends in their struggle for survival, OCBC simply shrugged its shoulders and doled out its dividends as per normal. In addition, the bank wasn’t even struggling with its business as it was still making healthy profits all the way through the crisis.

Earlier in April, the bank announced its latest acquisition of the Hong Kong-based Wing Hang Bank for around 1.77 times book value for a sum of S$6 billion. It’s a hefty purchase and if successfully integrated, would see OCBC gain a strong foothold in the Greater China region (consisting of China, Hong Kong, and Macau) and serve as a base for expansion there.

Wing Hang’s growth in book value per share – a good proxy for the change in the real economic value of a bank – has been fairly rapid at 12% per year on average from 2003 to 2013. In addition, the bank has also performed very well business-wise over the years. Despite the relatively pricey price-tag, those two factors – book value growth and solid operational performance – should bolster confidence in how the deal would likely be a positive for OCBC.

At its current price of S$9.69, OCBC’s valued at around 1.35 times its book value and carries a trailing dividend yield of 3.5%.

2. Hongkong Land Holdings (SGX: H78)

Year Dividends per share (US cents)
2006 10
2007 13
2008 13
2009 16
2010 16
2011 16
2012 17
2013 18

Source: S&P Capital IQ

The real estate outfit earns its keep from both rental income as well as property development.

Under the first segment, Hongkong Land focuses on a host of prime commercial and retail properties in Hong Kong and Singapore. The company’s property portfolio in Hong Kong – made up of 12 pieces of real estate – is found mainly in the region’s Central Business District (known as Central) and is worth around US$22.3 billion in total at last count.

Meanwhile, its interests in Singapore include One Raffles Link, One Raffles Quay and Marina Bay Financial Centre; these properties are carried on Hongkong Land’s books at a collective US$3.6 billion.

With the company’s second segment, it’s involved with luxury and high-end residential property development in areas like Hong Kong, Macau, China, Singapore, Indonesia, and the Philippines.

The company’s strong dividend performance has been partly underpinned by the resilient rental rates in its commercial properties in the Central area of Hong Kong: Between 2004 and 2013, the average office rent (denominated in per square foot per month) has grown from US$4.04 to US$12.70.

Even during the recession years of 2007 to 2009, the rental rates had managed to grow, as seen in the table below.

Year Average office effective rent (per square feet per month)
2006 4.83
2007 6.33
2008 8.52
2009 10.84
2010 10.85

Source: Hongkong Land Holdings’ 2013 Annual Report

With shares that are worth US$6.99 each now, the company’s selling for just 0.6 times its book value and has a trailing dividend yield of 2.6%.

3. Super Group (SGX: S10)

Year Dividends per share (Singapore cents)
2006 1.60
2007 1.60
2008 1.60
2009 2.60
2010 5.40
2011 5.80
2012 7.10
2013 9.00

Source: S&P Capital IQ

The instant beverage maker has had a history of solid financial performance which has helped to fuel its dividends. But lately, things aren’t looking so rosy for it.

Its recent first quarter earnings saw declines in both its top- and bottom-lines as political turmoil in Thailand – one of its largest geographical markets – had negatively impacted its business. All told, quarterly revenue had slipped by 6% to S$125 million while profits came in 19% lower at S$18.6 million.

To combat the malaise, Super Group’s management will be banking on its efforts in product innovation and brand building. But at the same time, management’s also concerned about the political turmoil in Thailand (the country’s army had just instituted martial law yesterday morning) and would seek the appropriate measures to minimise negative impacts on its business.

In any case, the company does have a history of innovation and great operational performance and that might be a positive factor in the company’s ability to right the ship and resume its growth. Shares of Super Group are trading at S$2.91 currently, representing a trailing price/earnings ratio of 17 and a dividend yield of 3%.

Foolish Bottom Line

When it comes to dividends, yields aren’t the only thing that’s important – the stability of the dividend and its ability to grow over time are extremely important too. The Great Financial Crisis has given us a great set of data points to work with for finding companies that have managed to thrive even in the toughest of times. Those could be great shares for investment.

But at the same time, it also pays to remember that a share’s historical performance is not a perfect indicator of its future success. There’s a lot more that has to go into the study of those three shares before one can say that they are truly recession-proof dividend shares.

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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 writer Chong Ser Jing owns shares in Super Group.