The CPF system forms the bedrock of Singapore’s retirement planning process, as it involves the build-up of funds from years of hard work, which can then be utilised for our golden years. In particular, the CPF Ordinary Account (OA) can be used for various purposes such as education, housing, and investments. The current interest rate on balances in the CPF OA is 3.5% for the first S$20,000 and 2.5% for amounts above S$20,000.
What many may not realise is that they can open a CPF Investment Account (IA), which is tied to their CPF OA, and invest the funds within their OA. While a risk-free 3.5% per annum is by no means shabby, it is probably only sufficient to keep pace with long-term inflation, which averages around 3% to 4% over the long term. In order to grow one’s retirement funds, it’s necessary to invest it into companies with both growth and dividend yields higher than this risk-free rate.
Here are two companies investors can consider for their CPF IA accounts.
1. Mapletree Commercial Trust
Mapletree Commercial Trust (SGX: N21U), or MCT, is a Singapore-focused REIT that invests in income-generating properties used for office and/or retail purposes. Its portfolio consists of five properties – VivoCity, Mapletree Business City I, PSA Building, Mapletree Anson and Bank of America Merrill Lynch Harbourfront. These properties have a total net lettable area of 3.9 million square feet with a value of around S$7 billion.
MCT reported a 3.6% year-on-year rise in its distribution per unit for Q1 2019/2020, while both gross revenue and net property income also saw year-on-year increases. VivoCity had a successful tenant changeover on 16 July to NTUC FairPrice (from the previous Giant Hypermarket and Cold Storage supermarket) and also converted the remaining anchor tenant space to house food and beverage outlets and other tenants.
Based on the annualised DPU for FY 2019/2020 of 9.24 Singapore cents, the REIT’s forward dividend yield is around 4.5%. Though this may not seem like a high yield, investors should note that the REIT had increased its DPU every single year since FY 2011/2012.
2. Frasers Centrepoint Trust
Frasers Centrepoint Trust (SGX: J69U) is a REIT that owns retail properties in Singapore. Its portfolio consists of six malls as well as a 33.3% interest in a seventh mall, Waterway Point, which was acquired recently. FCT’s malls are located mainly in suburban areas and have a large and diversified tenant base. In addition, FCT also owns a 31.15% stake in Hektar REIT (KLSE: 5121), which is listed on Bursa Malaysia.
FCT has an excellent track record of growing its DPU every single year since listing, and though its DPU of S$0.03 for Q3 2019 saw a slight 1.7% year-on-year dip, this was because of an enlarged unit base due to a recent secondary placement of shares. The REIT pays quarterly dividends and, based on the annualised DPU, is providing a dividend yield of 4.6%. Though this may not seem high, I have written about why I believe DPU can continue to grow in the future, which makes this a very attractive investment to own in one’s CPF IA.
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Editor's note: This is an amended article. NetLink NBN Trust and Valuetronics Holdings Limited have been removed from the original article as they are not part of the CPF Investment Scheme. We apologise for the error.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Frasers Centrepoint Trust, Hektar REIT, and Mapletree Commercial Trust. Motley Fool Singapore contributor Royston Yang doesn't own shares in any companies mentioned.