Income investors are generally seeking to invest in stable companies that can sustain dividend payments for long period of time. Moreover, they seek to acquire these companies at relatively attractive valuations, and one of the main criteria of an attractive valuation is a high dividend yield.
In other words, we are looking for stable blue chip companies that have above-average market yields, or yields higher than the SPDR Straits Times Index ETF (SGX: ES3) yield of 3.6%.
Let’s look at two blue chip that meet the above description.
No. 1: Singapore Telecommunications Limited
The first company is Singapore Telecommunications Limited (SGX: Z74), one of the three main telecom players in Singapore. The other two are StarHub Ltd and M1 Ltd.
Compared to its peers, SingTel has a more diversified income based since it derives a significant amount of its income from overseas countries like Australia, India, Thailand, and others. These overseas businesses complement its local income. On the downside, it’s currently facing challenges (both locally and overseas) as a result of stronger competition.
In term of dividend policy, SingTel has a policy of paying out between 60% to 75% of underlying net profit per year as dividend. Since 2005, the company’s dividend per share has risen from 13 Singapore cents to 20.5 Singapore cents in 2018. This does not include various special dividends during this period.
At their current price of S$3.16, shares of SingTel are trading at a trailing dividend yield of 6.5%.
No. 2: ComfortDelgro Corporation Limited
ComfortDelgro Corporation Limited (SGX: C52), a transport company with operations mainly in Singapore, Australia, the United Kingdom, and China, is the second blue chip with a higher dividend yield than the Straits Times Index. It is also the majority owner of vehicle and non-vehicle testing and inspection outfit Vicom Limited and bus and rail services operator SBS Transit Ltd.
Comfortdelgro has consistently paid a dividend for the last 10 years, growing dividend per share from 5.3 Singapore cents in 2009 to 10.5 Singapore cents in 2018. What’s more, its dividend per share has grown in each of the last 10 years!
In recent times, though, the company has been facing an increasing threat to its taxi business due to the growth of the ride-sharing industry. It’s important for investors to take this into account when evaluating the sustainability of future dividends. On a slightly positive note, Comfortdelgro is taking various steps to evolve itself so it can remain competitive in the future.
At the shares’ latest price of S$2.46, the company’s trailing dividend yield is 4.3%.
Do your own research
Though these companies generally have stable business operations, it’s important that investors do not take past performance as a guarantee of future performance. Things can change, both inside and outside of a business, so it’s important for investors to evaluate the future prospects of these companies before investing in them, especially since they can sustain their future dividends only through strong business performance.
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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 Lawrence Nga doesn’t own shares in any companies mentioned. Motley Fool has recommended the shares of SBS Transit Ltd.