Singapore households spend about $389 per month on groceries, on average. (and perhaps even more, now that more of us need a bigger snack drawer at home)
Given that we have a population of about 5.6 million people, imagine the amount of moolah that the supermarkets are raking in every month! ????
Now, wouldn’t it be great if some of that goes back into your pocket on a consistent basis?
3 Major Supermarket Companies in Singapore
There are 4 common supermarkets in Singapore: NTUC Fairprice, Cold Storage, Giant, Sheng Siong
Of these supermarkets, Dairy Farm [SGX:D01] (which owns Cold Storage, Giant and more) as well as Sheng Siong [SGX:OV8] are listed on the Singapore Exchange (SGX).
NTUC Fairprice is a co-operative, they are not listed publicly but they publish annual reports which the public can get access to.
Among them, Dairy Farm is the biggest company. On top of supermarket, Dairy Farm has various businesses, in various countries under their umbrella. Some examples are convenience stores (e.g. 7-Eleven) and beauty shops (e.g. Guardian).
In comparison, NTUC Fairprice and Sheng Siong mainly operate supermarkets in Singapore.
So…are any of these potentially profitable dividend stocks?
To find out, we use the Gross Profitability Dividend (GPAD) strategy to evaluate and uncover the best dividend paying supermarket stock in Singapore.
Let’s move on to deeper analyses of their businesses.
Which Supermarket Company is the Most Profitable?
Dairy Farm (SGX:D01) | Sheng Siong (SGX:OV8) | NTUC Fairprice | |
|---|---|---|---|
 |  |  | |
Gross Profits | US$3,191 M | S$381.9 M | S$1,262 M |
Total Assets | US$7,901 M | S$692.1 M | S$5,942 M |
Gross Profitability | 40.4% | 55.2% | 21% |
Relatively, Sheng Siong has the highest GPA of all.
Having the highest GPA means that they are actually using lesser assets to generate more profitability.
Which Supermarket Company Pays the Most Dividends?
Dairy Farm (SGX:D01) | Sheng Siong (SGX:OV8) | NTUC Fairprice | |
|---|---|---|---|
Latest Dividend Per Share | 17 cents | 8.3 cents | 4.69 cents |
Historical Dividend Yield | 3.8% | 5.5% | 4%* |
Dairy Farm paid out a dividend per share of 17 cents in FY20.
Sheng Siong’s management has declared a total dividend of 8.3 cents per share for FY20.
NTUC Fairprice distributed a dividend per share of 5.9 cents in FY16.
*As NTUC Fairprice is not a listed company and hence there’s no prevailing share price we can use. Based on the paid-up capital, the shareholders would get a 4% yield on this distribution.
Which Supermarket Company Has the Highest Pay Out?
Dairy Farm (SGX:D01) | Sheng Siong (SGX:OV8) | NTUC Fairprice | |
|---|---|---|---|
Diluted Earnings per share | 20 cents | 9.2 cents | 23 cents |
Dividend per share | 17 cents | 8.3 cents | 4.69 cents |
Payout Ratio | 0.85 | 0.9 | 0.2 |
Obviously numbers have fallen in 2020 thanks to Covid. But they remain pretty encouraging.
Dairy Farm’s diluted earnings per share was 20 cents and with a dividend per share of 17 cents, the payout ratio would be 0.85.
Sheng Siong’s earnings per share for FY20 was 9.2 cents. This means that Sheng Siong paid out 90% of the earnings as dividends, or a payout ratio of 0.9.
NTUC Fairprice’s earnings per share for FY20 was 23 cents. This yielded a very low payout ratio of 0.2.
Any number below 1 means it is sustainable.
Which Supermarket Company Has the Most Average Free Cash Flow?
Dairy Farm (SGX:D01) | Sheng Siong (SGX:OV8) | NTUC Fairprice | |
|---|---|---|---|
Average Free Cash Flow per share | 60 cents | 14 cents | 46 cents |
Dividend per share | 17 cents | 8.3 cents | 4.69 cents |
Sustainable? | Yes | Yes | Yes |
Diary Farm generated an average Free Cash Flow per share of 60 cents.
This is higher than the dividend per share of 21 cents. Hence, we can believe that the dividend distribution is sustainable and may even go up in the future since there’s cash building up in the company over time.
Sheng Siong’s average Free Cash Flow per share for the past five years was about 14 cents, which is also higher than their dividend per share. On top of that, they had also announced a 16-months bonus in 2020, to thank their staff.
The CB2.0 effect
Today, it was announced that Singapore is tightening Covid-19 measures, and Sheng Siong’s stock experienced a surge:
Although we can’t say the same for Dairy Farm:
I also noticed queues at the Fairprice in my neighbourhood. Stay safe!
Will these Supermarket Company become obsolete soon?
With the ease of online shopping and the increasing trend of consumers moving online, would e-commerce end the dominance of supermarkets in Singapore?
I don’t think so. Even with the powerful Amazon Prime in our shores.
Full disclosure, I do use services from Amazon Prime and Red Mart. But I still go to the supermarkets.
Singapore is a unique country and being small has advantages. Most of us live near a supermarket that is within walking distance.
I would be able to get my daily supplies and groceries in 15 minutes, faster than a Amazon Prime delivery that takes as fast as 2 hours.
Moreover, many of these supermarkets are positioned strategically. It is too convenient to drop by the supermarket during your daily commute to buy something.
E-commerce for groceries makes sense for bigger countries where people live hours away from the next supermarkets. It would be a pain to drive out to buy groceries.
Hence, my take is that supermarkets are here to stay in Singapore and would remain profitable.
Conclusion
The supermarkets are great businesses.
I believe that supermarkets are here to stay in Singapore despite the onslaught of e-commerce players. We have experienced the crowds in supermarkets during the circuit breaker, and many investors are expecting a repeat of events as suggested by the surge in Sheng Sion’s price.
This is because it is more convenient to go to a supermarket than to wait for delivery in our super-efficient country.
Although they are not cheap enough based on the GPAD strategy, you might want to watch these supermarket stocks and buy them when their prices become lower.
*Disclaimer: The Information in this article is not financial advice. It is general in nature and not specific to you. You are responsible for your own investment research and investment decisions.
One should look at ntuc’s debt as well, before concluding that the entire $1b belongs to shareholders.
Notwithstanding this, having investments to generate passive income is a good thing. If they don’t need the cash for more supermarkets.
these investments are made from their retained earnings and not borrowings. I’m not referring to the NAV of Fairprice but question the need to invest $1b dollars. They are not fund managers.
As NTUC FairPrice is not a public listed company, how does one become the shareholder to reap the benefits from its dividend payout? I occasionally received the dividend slip from NTUC FairPrice but have no idea what are the requirements or criteria to be eligible. Thank you.
If you received the dividend then likely you are the shareholder. I am also interested to know how to be a shareholder.
As
If you are a Union member and have acquired 20 Fairprice shares @ $1 per share, then U are 1 of the minority shareholder.
Seems like the only way now to get the NTUC Fairprice shares is sign up to be a FairPrice member. All Fairprice/union members can apply for 20 Fairprice shares at $1 each.
The source link: https://ntuc.org.sg/wps/portal/up2/home/membership/privileges/privilegedetails
Also, Ever come across to jules’s blog, she is sharing the dividend she got and how she saves her NTUC Fairprice membership fee.
http://julesofsingapore.com/2017/06/07/earn-money-ntuc-membership-2-steps/
–from your factor based investing course ex graduate
Thanks for the link to jules. Nothing beats a real account of someone going through the process and receiving the dividends!
I also own Fairprice. That was because i bought a Life policy from NTUC Income more than 20 years ago. They have been giving me good dividend year after year since. I heard its not possible to buy their shares now. Not sure.
You may want to check about NTUC union membership. I think you are given some shares initially by becoming a member. But I also want to know how to add more shares.
Very good analyses! So…
1. Which Singapore Supermarket Stock To Invest In? (this was your title, i spent 5 min and still don’t get an answer, feels clickbait).
2. What is your fair value, & what is a good price to get in?
“Although they are not cheap enough based on the GPAD strategy, you might want to watch these supermarket stocks and buy them when their prices become lower.” which stock is not better to be bought when prices become lower?
I would use GPAD strategy to decide but I cannot predict what is a good price to enter because it uses relative ranking.
It depends on their gross profitability and dividend yield rankings compared to the other stocks. If they are in the top 20% then they would warrant a buy. Right now they are not. Their dividend, profitability and price will change and it is too dynamic to say what’s the price that will put them in top 20%.
My observation is that the supermarkets generally have high gross profitability which make them good business.
It would be good to be able to own some NTUC Fairprice shares as the yields are indeed good.
For the two listed supermarkets, Sheng Siong is a better buy in my opinion based on the numbers now.
Thanks Alvin!!
I will keep a lookout for Sheng Siong then!
What kind of time frame are you looking at? &
what do u say are the current fair values of the 2 listed companies using your various factor models?
about 0.825
Yes agreed . I am still holding Sheng Siong since 2015! One day it will privatize!
NTUC Fairprice is a cooperative, even if it is completely liquidated, member can only get back $1 per share. According to Cooperative Law, any surplus after paying member, will go back to Centre Cooperative Fund.
how to get the CAPITAL EXPENDITURE for sheng siong?
Under the cash flow statement, investing cash flow section, “Purchase of property, plant and equipment” is the CAPEX. Or you can use websites like SGX Stockfacts to see their financials. They calculate the CAPEX too.
your website is useful, thank you very much
I own the Fairprice shares at $1 since 3-4 decades ago. Goodness, it’s share price has been $1 since time memorial.