Retirement is called the golden years for a reason; it is time to relax and enjoy the fruits of your labour. The last thing you want to worry about during your retirement is finances. As such, retirees need to build a stream of passive income that will allow them to enjoy their golden years stress-free. With that, here are two stocks that could help you enjoy your retirement years.
A recession-proof stock
VICOM Limited (SGX: V01) is one of my top retirement picks. The company operates seven of the nine vehicle inspection centres in Singapore and has the largest market share in the vehicle inspection space here.
The beauty of VICOM’s business is that vehicle inspections are required by law. All cars older than three years have to go through a vehicle inspection once every two years, while cars older than 10 years have to go through annual inspections. As such, VICOM’s business is effectively recession-proof due to the regulatory requirements in Singapore.
VICOM not only generates a good amount of cash to continue dishing out dividends each year, but it also has plenty of cash on its books. The group generated S$13.9 million in free cash flow in the first quarter of this year and had S$88.98 million in net cash as of 30 June 2019.
As such, VICOM has the means to continue dishing out those sweet dividends to fund your retirement expenses. Based on the first-half earnings and interim dividend, VICOM has an annualised price-to-earnings ratio of 22.8 and an annualised dividend yield of 4.0%.
Hop on board
SBS Transit Ltd (SGX: S61) is the main beneficiary of Singapore’s transition to the bus contracting model (BCM). In the past, SBS Transit used to invest in operating assets such as buses and bus depots and earns revenue based on passenger fares. However, the public bus transport system in Singapore is tightly regulated as the Land Transport Authority (LTA) controlled passenger fares.
Unable to increase prices and faced with rising costs, SBS Transit’s business began to suffer declining profit margins. Thankfully, the introduction of the BCM in 2016 changed all that. In this model, SBS Transit was able to loan out its existing bus fleet to the LTA for depreciation cost of the fleet, thus increasing SBS Transit’s cash flow and profitability.
On top of that, SBS Transit negotiated the right to operate eight of the 14 bus packages. These bus packages began in 2016 and had an average contract length of seven years, providing the transport company with visible annual recurring income.
Since the introduction of the BCM, SBS Transit’s earnings per share has increased from 5.41 Singapore cents in 2015 to 25.72 Singapore cents in 2018. The group’s dividend per share also increased from 2.7 Singapore cents in 2015 to 12.9 Singapore cents in 2018, with SBS Transit committed to paying out at least 50% of its earnings to shareholders.
Although the BCM will bring about greater competition for SBS Transit, the recent renewal of one of its bus packages (Bukit Merah) and its tender win for Seletar bus package demonstrates that SBS Transit has a good chance to continue winning new or renewing its existing contracts. SBS Transit is the most experienced bus operator in Singapore and currently has the largest market share, putting it in a good position for future BCM tenders.
Based on its interim results, SBS Transit has a price-to-earnings ratio of 14.2 and an annualised dividend yield of 3.5%.
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 SBS Transit Ltd and VICOM Limited. Motley Fool Singapore contributor Jeremy Chia does not own shares in any companies mentioned.