MENU

3 Investing Lessons You Should Remember as the Singapore Market Hits a 7 Year High – Part 3

Credit: Simon Cunningham

Last week, my Foolish colleague Ser Jing noted that Singapore’s market barometer, the Straits Times Index (SGX: ^STI), had hit a new seven-year high when it closed above 3,500 points in mid-April for the first time since 12 December 2007.

To illustrate further, the Straits Times Index had hit 3,549 points on 12 December 2007 and subsequently fell to a low of 1,456 on 9 March 2009.

With such tumultuous periods in the past, it may be tempting to think that we are ripe for stock market turbulence ahead given that we’re past the 3,500 level again.

But instead of worrying, we may want to take investing lessons from the past so as to better prepare ourselves for the future.

With that, I would like to share three lessons I have learnt over the past seven years.

You can jump in here for the first lesson and the second lesson.

Lesson 3: If cash is king, then dividends are the king during recessions

While there was a sickening 60% drop in the Straits Times Index at the nadir of the Global Financial Crisis, the dividend payouts from the companies which make up the index were much less affected.

In fact, my Foolish colleague Ser Jing has pointed out previously that the dividends of the index’s 30 constituents had actually rose by an average of 4% from 2007 to 2009.

That said, there were some blue chips which did not manage to grow their dividends during that episode. For instance, Singapore Airlines Ltd (SGX: C6L) had cut its dividend by 60% during the crisis period (2007 to 2009).

Foolish investors may want to keep their eyes on the firms which managed to raise their pay-outs as cash would be good to have during the depths of the Global Financial Crisis.

Aircraft engineering outfit SIA Engineering Company Limited (SGX: S59) would be one such company – its dividends rose by 33.3% over the crisis (2007 to 2009).

If Foolish investors had managed to pick up shares of SIA Engineering at $1.51 on 9 March 2009, those shares would have flown up by 176% since then (from 9 March 2009 to 28 April 2015). Furthermore, those same shares at $1.51 would be giving a sweet 15.8% dividend yield-on-cost on a trailing twelve months’ basis.

In short, if you would like to have cash during recessions, then start studying companies which have the cash flow to sustain their dividends even during downturns. Those shares may just provide you with cash when you need it most – like during the depths of recessions.

I hope you enjoyed this three part series. Fool on!

To learn more about investing and to keep up to date on the latest financial and stock market news, sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeAlso, like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.