Investing for retirement is one of the most important financial goals that investors have. There are many ways for them to reach their goals, one of which is to invest in stocks.
Now, selecting individual stocks is not an easy thing to do since investors will need to assess many different factors within a business before deicing to invest. In our previous article here, we concluded that Sheng Siong Group Ltd (SGX: OV8) has a stable and sustainable business. And now let’s look at another two crucial aspects in terms of the safety of its dividend and suitability as a retirement stock.
Dividend track record/policy
One of the key criteria that retirees should consider before investing in a company is its dividend track record. This is important since retirees will need dividend income to pay their bills and other expenses. In general, a company with a stable dividend track record will provide reassurance for investors that it will continue to pay dividends in the future.
And now, some facts about Sheng Siong’s dividends. Since its IPO in 2011, Sheng Siong has paid a dividend in each of the following years. During the period, dividend per share (DPS) grew from 1.77 cents in 2011 to 3.40 cents in 2018.
Though its past record is no guarantee of future performance, it is likely that Sheng Siong will continue to pay out a stable dividend so long as it can sustain its profitability.
Strength of the balance sheet
There are many good reasons to invest in a company with a strong balance sheet. For one, it allows the company to sustain, as well as grow, its business over time with low risk. Also, dividends are paid out to investors in the form of cash. Thus, a company must have enough cash in the till or at least have the ability to borrow money (if necessary) to pay its dividend. In short, it makes a lot of sense for retirees to invest in a company with a strong balance sheet.
To gauge the strength of a company’s balance sheet, the net-debt to shareholder’s equity ratio can be used (net-debt refers to total borrowings and capital leases net of cash and short-term investments). A ratio of over 100% would mean that a company’s net-debt outweighs its shareholders’ equity.
So does Sheng Siong have a strong balance sheet? A quick glance at its latest financial position (as of 31 March 2019) shows that Sheng Siong has S$86.3 million in cash and zero debt. Such numbers indicate that the company has solid balance sheet strength.
In sum, based on what we have looked at above, as well as from my previous article, I think that Sheng Siong is a quality company worthy of further research for your retirement portfolio. The conclusion takes into account its stable financial and dividend track record, as well as its solid balance sheet strength.
Nevertheless, as with all stocks, there are still business risks investors should be aware of. Sheng Siong is no exception. I’ll take a look at one of the key risks it faces in my next article.
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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. The Motley Fool Singapore has recommended shares of Sheng Siong Group Ltd.