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3 Reasons VICOM Limited is the Perfect Retirement Stock

Our golden years should be a time to recover from the hectic working life. However, to do so, we need to ensure that we have sufficient passive income to pay for our daily needs. Building a portfolio of stocks that pay out regular dividends is a great way to achieve this.

With that said, here are three solid reasons why I believe VICOM Limited (SGX: V01) is the perfect retirement stock.

Recession-proof Business

VICOM’s business is effectively recession-proof. The company operates seven of the nine vehicle inspection centres in Singapore. As all cars older than three years require mandatory inspections, VICOM’s car inspection business is backed by regulatory requirements that are unlikely to change any time soon.

It also is by far the biggest player in the vehicle inspection space. In 2018, it inspected 73% of the vehicles that were due for inspection that year. VICOM’s track record of consistent earnings in the past is a testament to its resilient business model.

Willingness to dish out higher dividends

Retirees can also rest easy that the company is willing to pay out most of its earnings as dividends. The group has steadily increased its dividend payout ratio in the last 10 years as it seeks to reward shareholders with higher dividends.

In addition, VICOM has a large stockpile of cash. As of 31 March 2019, VICOM had S$112.8 million sitting in the coffers. It also generated S$8.7 million in free cash flow in the first quarter of 2019.

With its asset-light model and so much idle cash, the group is likely to continue returning part of this cash to shareholders in the next few years.

Decent yield

Crucially, VICOM also sports a fairly decent yield. Based on VICOM’s current share price and annualised first quarter earnings, VICOM has an earnings yield of around 4.7%. With the company looking to pay out close to 100% of its earnings back to shareholders, investors can look forward to a fairly decent dividend yield.

On top of that, there is also a chance that the company will pay out a special dividend in 2019, as it did for 2018, which would make 2019’s cash flow from a stake in VICOM even more appealing.

The Foolish bottom line

VICOM does have its limitations though. For one, Singapore is moving to a car-lite society, with the government targeting zero private car growth. This will limit VICOM’s long-term growth prospects.

However, even with limited growth in sight, retirees may still want to consider VICOM as a potential cash-generator. 

Besides its decent yield, VICOM is recession-resistant and is largely immune to currency risks, as it operates mainly in Singapore. It also has a robust balance sheet. All of which makes it a great choice for yield-hungry retirees looking for consistent dividends.

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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 Jeremy Chia does not own shares in any companies mentioned. The Motley Fool Singapore has recommended shares of VICOM Limited.