It is old news that interest rate is rising. But it is not until recently that Singaporeans start to feel the impact of this rise.
Just in case you are not aware, Singapore does not set interest rates but the Monetary Authority of Singapore (MAS) manages the exchange rate of Singapore Dollar.
When USD rises, MAS has to intervene and strengthen SGD as USD should be one of the key currencies that SGD benchmarked against.
As such, Singapore will inherit the rising interest rates from the US.
We have observed the interest rates rising in Singapore government securities, fixed deposits as well as money market funds.
Even top stock broker moomoo’s Cash Plus is offering a 7-day annualized yield of around 2.6% via the money market funds! The data is accurate as of 11 October 2022 and is derived from the past performance of the money market fund on moomoo cash plus.
This is a good problem as investors have always been complaining about low interest rates for many years. Finally cash can work harder now!
Given that rates of lower risk instruments are higher now, investors do not need to take on more risks by buying dividend stocks.
In fact, I think it isn’t defensive to just buy dividend yielding stocks currently. It is important to consider the capital gain potential, either because the stock is growing or it is undervalued.
In other words, it is still okay to buy a growth or value stock that pays dividend, but not a pure dividend stock in current climate.
To give you some stock examples of what I mean, I’ve identified those stocks that have high dividend pay outs but low dividend yields, and with little potential for capital gains.
These are not worthwhile investments at this point in time.
Here are 5 of them, not in particular order.
#1 ABR Holdings (533)
- Price: S$0.43
- Dividend Per Share: $0.01
- Dividend Yield: 2.3%
- Payout Ratio: 0.8
Swensen’s would be a more familiar name. ABR is the holding company of the restaurant brand known for its ice-cream.
The restaurant chain was hit by Covid as it saw its revenue declined from S$121m in 2019 to S$75m in 2021. But its revenue has been stagnating even before Covid.
The dividend per share was S$0.01 in FY21, which gives a dividend yield of 2.3% at a share price of S$0.43.
Based on an earnings per share of S$0.0124, the payout ratio was 0.8.
There is little growth to show for over the years and it is unlikely to deliver much growth in the future and this means that majority of the returns are likely to come from dividends.
And at 2.3% dividend yield, it is worse than moomoo’s Cash Plus rates and yet investors take on higher risk.
#2 Isetan (I15)
- Price: S$3.45
- Dividend Per Share: $0.03
- Dividend Yield: 0.9%
- Payout Ratio: 0.6
Departmental stores are having a hard time keeping up in a changing world where brands are going direct to customers, either online or offline.
Isetan is no different and has saw its revenue stagnating for many years and a 31% decline during FY2020 when Covid hit.
The company has also been making losses in 3 out of the last 5 years.
But it continued to give out dividends and it has been $0.03 per share for the last few years.
That translate to a 0.9% dividend yield and a payout ratio of 0.6 based on a $0.0522 earnings per share.
Not worth the yield and the risk given that the company is in a sunset industry.
#3 Khong Guan (K03)
- Price: S$1.26
- Dividend Per Share: $0.02
- Dividend Yield: 1.6%
The older folks would have a stronger affinity with this brand of biscuits. For me, they were an indispensable food staple when I was serving my National Service in the field.
Khong Guan did increase its revenue in the past 5 years but by a mere 2% per year compounded annual growth rate. Nothing inspiring.
But the cost has been rising such that they sank into losses or made marginal profits – latest FY21 was a loss. It seems like Khong Guan was unable to pass down the cost increase to the customers. Their brand may not be strong enough to increase the price without losing much demand.
The management still gave out a $0.02 dividend per share which translate to a 1.6%. Again, moomoo’s Cash Plus would be a better deal without the risk.
#4 Genting SP (G13)
- Price: S$0.78
- Dividend Per Share: $0.01
- Dividend Yield: 1.2%
- Payout Ratio: 0.7
Genting Singapore got one of the two prized integrated resorts in Singapore. But similar to many companies in this list, Genting Singapore did not exhibit any growth. Between 2015 and 2019, the revenue had stagnated between S$2 billion and S$2.5 billion.
On the other hand, Covid really hit Genting Singapore hard, seeing its revenue tanked 57% to just S$1 billion. It has yet to recover its revenue even in 2021. The first half of 2022 has seen some recovery – revenue was up 20% but profits were down 4%.
The management gave out a S$0.01 dividend per share for FY2021. That gives a dividend yield of 1.2% based on the share price of S$0.78.
#5 Chip Eng Seng (C29)
- Price: S$0.72
- Dividend Per Share: $0.02
- Dividend Yield: 2.8%
One of the established construction companies in Singapore which has been active in the property development scene too. Kopar at Newton is a recent project for an example.
Revenue has been fluctuating between S$675 million to S$1,115 million in the past five years. This is expected considering that construction or development businesses tend to be lumpy.
The company made a loss in FY2021 but still gave out a dividend per share of S$0.02. That is a 2.8% yield on a price of S$0.72. The dividend yield has compressed as the share price has gone up 67% this year. Such marginally higher yield than a money market fund is not worthwhile for an investment in the stock right now.
Keep your investment capital liquid while earning higher interest
There are more options to keep your excess cash today. But it is important to know what you are keeping the cash for.
To get the higher interests, you might be thinking to buy Singapore Government Bonds or Treasury Bills or fixed deposits. Understand that you should only do this if you do not need the cash throughout the bond tenure or the fixed deposit lock-in period. This is because you may lose money if you sell the bonds or terminate the deposit prematurely.
Even Singapore Savings Bonds would take a month to process in order for you to get the cash.
Moomoo Cash Plus on the other hand has no such constraints and you can withdraw your cash as fast as within a day.
It is a no brainer especially if you intend to use the capital to buy stocks as the market crashes – you want to keep the capital accessible in order to seize the opportunities in a timely manner.
Get S$60 by depositing S$100
Moomoo SG is running a promo where you get S$2 cash back each day for 30 days as long as you deposit at least S$100 into it.
That’s 60% return in 30 days!
The promotion is ending 31 Oct 2022.
Final thoughts
Interest rates are a lot more attractive today and that makes investors question why we should invest in those low dividend yielding stocks out there.
It is still reasonable if they are value or growth stocks where they possess capital gain potential. But it isn’t worthwhile if the majority of the gains are coming from dividends and yet the yields are lower than interests from quasi-cash deposits.
I have given 5 examples in this post but there were more. To make things worse, rates are still climbing and investors will continue to demand higher yields, which means there are more downside for pure dividend stocks to come.
This might not be a bad time to keep some cash in moomoo Cash Plus and to deploy it when stocks are at rock bottom prices.
This article has been written in collaboration with moomoo. All views expressed in the article are the independent opinions of the writer. The information in this article is purely for informational purposes and should not be relied upon as financial advice. This advertisement has not been reviewed by the Monetary Authority of Singapore.
