Income investors are generally seeking to invest in stable companies that can sustain dividend payments over a long period of time. Moreover, they seek to acquire these companies at relatively attractive valuations. Here, one of the main criteria of an attractive valuation is to have a high dividend yield.
In other words, we are looking for stable blue-chip companies that have above-average market yields. Here, an above-average yield is one that is higher than the SPDR Straits Times Index ETF yield of 3.4%.
With that, let’s look at the two blue chips that meet the above description.
Blue chip 1
The first company on our list is DBS Group Holdings Ltd (SGX: D05), the biggest among our local banks. DBS Group has been a solid performer in the last decade, growing total income from S$6.0 billion in 2008 to S$13.2 billion in 2018. Similarly, its net profit attributable to shareholders grew from S$ 1.9 billion in 2008 to S$ 5.6 billion in 2018.
Such performance is commendable considering that the bank was already a big company ten years ago. In terms of its dividend track record, DBS Group has performed equally well. Since 2008, its dividend per share (DPS) has risen from 65 cents to 120 cents in 2018. In other words, the dividend was up by 85% during the period.
At its current price of S$26.91, DBS Group is trading at a trailing dividend yield of 4.5%.
Blue chip 2
Singapore Exchange Limited (SGX: S68), or SGX, is the second company on our list. For readers who aren’t familiar with the company, SGX is the only stock exchange operator in Singapore. Similar to DBS Group, SGX has consistently paid a dividend over the last decade, growing DPS from 26 cents in FY09 to 30 cents in FY18. Though its dividend was up by “only” 15% during that period, income investors would have benefitted from its consistent dividend payout over the years.
Going forward, SGX is well-positioned to continue its dividend payout. For one, it’s the only stock exchange in Singapore. Thus, we can expect the company to continue to benefit by providing necessary services to the financial markets. Moreover, it could also grow its business over time by providing additional services to meet the needs of market participants.
At its latest price of S$8.04, its trailing dividend yield is 3.7%.
The above are two blue-chip companies with above-average dividend yields (when compared to the broader market). Though these companies generally have stable business operations, it’s important that investors do not take past results as a guarantee of future performance. After all, businesses do change and that these companies are not shielded from such changes.
Thus, it is important that investors evaluate the future prospects of these companies before investing in them, especially since these companies can only sustain their future dividends 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. The Motley Fool Singapore has recommended the shares of DBS Group Holdings Ltd and Singapore Exchange Limited.