Everyone loves a great deal, but in the stock market, it pays to be cautious as seemingly good deals may come with strings attached. When it comes to dividend hunting, many investors fall head-over-heels in love with companies with high dividend yields, even though the chase for high yields may result in investors losing their shirts.
The most important aspect of a dividend is whether a company is able to sustain it. If the business is doing well and the company is generating cash in excess of what it needs for its operations, then there is a high chance that dividends can continue to be paid out. Here are three companies with sustainable dividend yields above 5% for investors to consider.
VICOM Limited (SGX: V01)
VICOM Limited is a company dealing with vehicle testing and inspection, and it also has a division that handles non-vehicular (technical) testing. The company has a dominant market share in vehicle testing and is one of the leading players in materials and soil testing, among others. Although the business is facing some headwinds from the government’s push toward a car-light society, revenue and cash flow continue to be stable, and the business generates cash in excess of what it requires.
For fiscal year 2018 (FY 2018), VICOM had a cash balance of S$104.1 million and paid out a final cumulative special dividend of 23.17 and 8.62 Singapore cents, respectively. The interim dividend was 13.46 Singapore cents per share, bringing the full-year dividend to 45.25 Singapore cents per share. At the last traded price for VICOM’s shares of S$6.74 as of 26 April 2019, this translates to a historical dividend yield of 6.7%. If the special dividend is stripped out, the yield drops to 5.4%.
Frasers Logistics and Industrial Trust (SGX: BUOU)
Frasers Logistics and Industrial Trust, also known as FLT, is a real estate investment trust (REIT) that owns industrial properties in Australia, Germany, and the Netherlands. The REIT recently reported its second-quarter fiscal-year 2019 earnings and declared a distribution per unit of 3.54 Singapore cents for the half year. Annualising the dividend would give us 7.08 Singapore cents, which translates to a forward dividend yield of 6.0% at the last closing price of S$1.18 as of 26 April 2019.
Valuetronics Holdings Limited (SGX: BN2)
Valuetronics Holdings Limited is an integrated electronic manufacturing service provider located in Hong Kong. It has two main divisions: consumer electronics, which manufactures products and components relating to end-user products such as electric shavers and LED lighting; and industrial and commercial electronics, which manufactures parts for printers and cars.
The company has seen consistent demand for its products, which are used in many electronic devices, and it has a clean balance sheet (as of 31 December 2018) with HK$754.9 million in cash (around S$131 million). The company had just declared an interim dividend of HK$0.05 for fiscal year 2019 (ended 30 June 2019), and last year, it declared final and special dividends of HK$0.20 and HK$0.05, respectively. This brings the trailing-12-month dividend to HK$0.30, or around 5.21 Singapore cents. At the closing share price of S$0.695 as of 26 April 2019, Valuetronics had a trailing dividend yield of 7.5%.
The Foolish takeaway
These three companies have robust business models that are cash-generative, allowing these companies to pay consistent dividends. It is the investor’s responsibility to continue to monitor these business to ensure they are able to continue to sustain the current level of dividends.
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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 Royston Yang owns shares in VICOM Limited and Frasers Logistics & Industrial Trust. The Motley Fool Singapore has recommended shares of VICOM.