Currently, Singapore Telecommunications Limited (SGX: Z74), or Singtel for short, has a dividend yield of 5.3% at its share price of S$3.29. The yield is high, above that of the Straits Times Index (SGX: ^STI). However, in the years to come, the dividend yield could fall due to challenging business conditions in the telco industry. Therefore, I believe there are better dividend shares out there as compared to Singtel; here are two of them.
1. VICOM Limited
VICOM Limited (SGX: V01) is a provider of technical testing and inspection services mainly in Singapore. The following shows the company’s dividend history (including special dividends) from 2014 to 2018:Source: VICOM 2018 annual report
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VICOM’s 2018 total dividend of 45.25 Singapore cents per share gives the company a dividend payout ratio of 116%. In its 2018 annual report, VICOM chairman Lim Jit Poh commented that though the present dividend policy is to distribute 90% of its net profit as dividends, the board had decided to maintain its 2017 practice of paying out 120% of its profits for 2018.
The company said that as long it doesn’t see a need for the extra cash, it would be returned to shareholders. As of 31 March 2019, VICOM had S$112.8 million in cash with no bank borrowings. This is an improvement from the end of 2018, where it had S$104.1 million in cash and zero debt.
The cash balance has the potential to grow further. VICOM commented in its latest quarterly report that the “vehicle testing business is expected to improve as a record high number of 37,000 old private cars, all of which are subjected to mandatory annual inspections, renewed their Certificates of Entitlement in 2018”. That could fuel higher dividends for VICOM’s shareholders in the near future.
At VICOM’s current share price of S$6.69, it has a dividend yield of 5.5%, excluding any special dividend.
Micro-Mechanics (Holdings) Ltd (SGX: 5DD) designs, manufactures, and markets consumables and precision tools used in the semiconductor industry. The following shows how Micro-Mechanics’ dividend (including special dividends) has grown over the years:Source: Micro-Mechanics 1H2019 earnings presentation
In FY2018, Micro-Mechanics declared a total dividend of 10 Singapore cents per share (9.0 cents in ordinary dividend and 1.0 cent in special dividend), translating to a dividend payout ratio of 81%. Excluding the special dividend, the payout ratio is at 73%, which is conservative.
Over the long-term, the semiconductor industry should do well due to the proliferation of Internet of Things (IoT) devices and artificial intelligence.
At Micro-Mechanics’ current share price of S$1.47, it has a dividend yield of 6.1%, excluding any special dividend.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of VICOM and Micro-Mechanics. Motley Fool Singapore contributor Sudhan P owns shares in VICOM and Micro-Mechanics.