Singaporeans should be very familiar with the central goal of the Central Provident Fund (CPF), which is to help you retire comfortably. However, not many may be as familiar with the CPF Investment Scheme (CPFIS) that is tagged on to your CPF Ordinary Account (OA). Through this scheme, you can invest to earn better returns using your CPF Investment Account (CPFIA).
The CPFIS allows you to purchase investments using your OA account but this is restricted to 35% of the “investible savings” for equities (i.e. shares and unit trusts) and another 10% for gold. The interest rate on the CPF Ordinary Account (OA) stands at 3.5% for the first S$20,000 and 2.5% thereafter. Therefore, the intention is for us to be able to at least beat the 3.5% “risk-free” rate which is being offered by CPF.
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I, personally, don’t think that is hard to do over the long term. Here are three companies I believe you should buy now, and hold for years, with the CPFIA.
1. Singapore Exchange Limited
The Singapore Exchange Limited (SGX: S68), or SGX for short, is Singapore’s sole stock exchange. The group’s business is divided into three main business units: Equities and Fixed Income; Derivatives; and Market Data and Connectivity.
While securities trading volumes continue to fall (as evidenced by its recent third-quarter earnings report), derivatives volumes continue to surge and replace the loss of revenue from the securities side. Over the medium term, SGX intends to introduce a more varied range of derivatives such as those related to foreign exchange (where it already specialises), aiming to become a regional leader in the space.
With solid longer-term growth prospects for the business, along with the payment of a quarterly dividend (currently yielding 4.0% annually), SGX is definitely a leading contender for your CPFIA.
2. VICOM Limited
VICOM Limited (SGX:V01) is a company dealing with vehicle and non-vehicular testing and inspection. It commands the lion’s share of the vehicle inspection market in Singapore and has promising growth prospects for its non-vehicle testing and inspection services division.
Even with a 0% growth rate mandated for the vehicular population in Singapore, existing car owners still have to send their old vehicles in for frequent inspections. Newer cars, which simply replace older cars, also need to be inspected. It’s here that VICOM can raise its inspection fees per car should costs start to rise for the company. What’s more, within Singapore’s vehicle testing business, VICOM commands a dominant market share of over 70% – giving it a formidable business moat.
On the financials front, the company paid a total of 45.25 Singapore cents in dividends for its fiscal year 2018 (including a special dividend of 8.62 Singapore cents per share). Even if we strip out the special dividend, the historical dividend yield still stands at 5.6% based on a full-year dividend of 36.63 Singapore cents and its share price of S$6.57 as at 3 May 2019.
3. Mapletree Commercial Trust
Mapletree Commercial Trust (SGX: N21U), or MCOT for short, is a real estate investment trust (REIT) that owns five retail and office properties in Singapore. Its property portfolio consists of VivoCity, Mapletree Business City I, PSA Building, Mapletree Anson and Bank of America Merrill Lynch HarbourFront.
MCOT has a portfolio of quality assets that have room for positive rental increases, as evidenced by the 5.5% increase in fixed rents for the overall portfolio. For the full year 2018, DPU was 9.14 Singapore cents, translating to a historical dividend yield of 4.7% at its unit price of S$1.95 as at 3 May 2019. The table below shows MCOT’s dividend history.
Since its listing in late-2011, MCOT has managed to grow its dividend from 5.271 Singapore cents in FY 2012 to the current 9.14 Singapore cents, which is an impressive 73% growth over eight years. With high occupancy rates and also rental escalation clauses embedded in tenant contracts for the commercial and retail portions of the REIT, MCOT looks poised to continue paying increasing dividends in FY 2020 and beyond.
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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 Singapore Exchange Limited and VICOM Limited. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited, VICOM and Mapletree Commercial Trust.