Many Singapore income investors like to invest in real estate investment trusts and business trusts as such instruments give them a regular stream of income. However, those trusts are usually highly leveraged. If the economy suddenly goes south, highly-leveraged companies could get hurt.
Some stocks in the local stock market offer high dividend yields just like the trusts, but without taking on too much debt. Therefore, they tend to be safer income stocks.
Let’s check out five of the best dividend stocks in Singapore right now. These stocks were screened using stringent criteria to include only stocks that have:
1) Dividend yield of between 3% and 10%;
2) Dividend payout ratio of below 80%;
3) Debt-to-cash flow of below 50%;
4) Dividend growth rate of more than 3% per annum for the past three years; and
5) Profit growth rate of more than 3% for the last three years.
The first criterion was chosen because I wanted stocks with a reasonable yield at the minimum. The second criterion gives me companies with well-covered dividends, while the the third criterion is used to select stocks with strong balance sheets. The dividend and profit growth rates of 3% – the fourth and fifth criteria – were included as the average long-term inflation rate in Singapore is around 2.6%. Dividend and profit growth rates above the average inflation rate are superb, as that means that the dividends and profits are keeping up with inflation at the very least.
Without further ado, here are Singapore’s best five dividend stocks.
First on the list is Challenger Technologies Limited (SGX: 573), an operator of IT retail stores and an online IT marketplace. At a share price of S$0.47, Challenger has a dividend yield of 7.0%. For more on Challenger Technologies’ payout ratio, check out this article.
Next up is PNE Industries Ltd (SGX: BDA), with a dividend yield of 5.6%, excluding its special dividend. If the special dividend is included, the company’s dividend yield jumps to 6.7%. PNE is an electronics manufacturing services company which also provides emergency lighting products.
Coming in third is Micro-Mechanics (Holdings) Ltd (SGX: 5DD). The company designs, manufactures, and markets consumables and precision tools that are used in the semiconductor industry. At its current share price of S$1.78, Micro-Mechanics has a dividend yield of 4.5%, excluding special dividends. With the addition of the special dividend, Micro-Mechanics’ dividend yield goes up to 5.1%.
ISEC Healthcare Ltd (SGX: 40T), a provider of specialist medical ophthalmology services, takes the fourth spot with a dividend yield of 4.1%. The company’s dividends have grown a whopping 121.8% per year from 2014 to 2017. This colossal growth rate makes this firm the best dividend grower out of the five companies.
Last but not the least, there is Spindex Industries Ltd (SGX: 564). The company is an integrated solutions provider of precision-machined components and assemblies. Right now, Spindex has a share price of S$0.84, which gives it a dividend yield of 3.6%.
Coincidentally, both Challenger and Spindex were featured as two of the 30 best stocks to own in Singapore for 2018. I also like those two companies and as such, did analyses on them, which can be found here.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of Micro-Mechanics (Holdings) Ltd. Motley Fool Singapore contributor Sudhan P owns shares in Micro-Mechanics (Holdings) Ltd.