The Phillip SING Income ETF (SGX: OVQ) is an income-focused exchange-traded fund (ETF) that offers investors a cost-effective way to gain exposure to the Singapore stock market. The new ETF will mimic the stock holdings of the Morningstar Singapore Yield Focus Index. With that in mind, it’s worth spending the time to understand how the stocks are selected. The 30-stock index applies three main criteria to Singapore-listed companies: business quality; financial health; and dividend yield. Prior to today, we took a look at how Morningstar examines the quality of a business and the company’s financial health. Today, we will look into … Dividend…
The new ETF will mimic the stock holdings of the Morningstar Singapore Yield Focus Index. With that in mind, it’s worth spending the time to understand how the stocks are selected. The 30-stock index applies three main criteria to Singapore-listed companies: business quality; financial health; and dividend yield.
The ETF will pay a semi-annual dividend to its shareholders. Senior fund manager Tan Teck Leng explained the importance of seeking a high dividend yield:
“One key approach investors can take in an uncertain environment is to buy stocks that have high dividends.
Dividends are important because they indicate a company’s sound cash flow and signal a shareholder-orientated approach. Such stocks also tend to do better in uncertain market environments.
Returns from dividends is a major component of total returns. In the Singapore stock market, about two-thirds of total returns to investors since 2000 have come from dividends.”
From the explanation given, there are a few things we can learn. The Phillip SING Income ETF will be using the dividend yield as a screening tool. The fund manager believes that a company that can pay consistent dividends is a sign that it is producing sufficient cash flow to distribute as dividends.
It is important to understand that the dividend yield criteria does not stand alone, but is an outcome of a sound business with good financial health.
As mentioned, a stable dividend payout could come in handy in turbulent markets. Even when markets decline, investors can enjoy the dividend payout while waiting for the market to rebound.
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The Motley Fool Singapore contributor Esjay contributed to this article. Esjay does not own any of the shares mentioned.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore writer Chin Hui Leong does not own any of the shares mentioned.