Singapore Strategy - Dividend Plays To Crow About
- We highlight selected stocks that will offer compelling final dividends as well as stocks that could surprise on dividends in the upcoming quarter.
Dividend stocks to watch out for.
- We highlight stocks with compelling final dividends to watch out for.
- We also highlight stocks that could surprise on the upside and downside with respect to dividend payouts, and flag stocks to position in after the recent market strength.
Final dividends to watch out for.
- Within our coverage universe, there are a number of stocks which will announce 4Q16 results with lumpy final dividends on offer. We filter these stocks based on companies offering compelling final dividend yield, sustainable dividend payouts and potential to grow future dividends.
- Stocks in our BUY list for this category include Venture, ST Engineering (STE) and Ascott REIT (ART).
- Among these stocks, our top pick is Venture Corporation, which is slated to release its results on 24 February. We remain fans of Venture given its strong execution and ability to grow its high margin segment. We have a higher-than-consensus DPS forecast for FY16 at 55 S cents/share (consensus: 50 S cents/share).
- ST Engineering (STE) will release its 4Q16 results on 16 February and we forecast STE to declare 10 S cents for final and special dividend (2016: 10 S cents). This implies a payout ratio of 92% for the full year excluding impairment charges. STE had indicated that they are committed to defending the dividend payout, regardless of short term aberrations.
- As for Ascott REIT (ART), the stock is a laggard but there are uncertainties pertaining to the expiry of its master leases. Four of its 17 master-leased assets in France (10.8% of portfolio value) are up for renewal (for another nine years) by end-17. These represent about 6% of total revenue. Its 4Q16 results were in line with our forecast and a final DPS of 4.39 S cents/share was declared.
Surprises in store?
- In the upcoming results, we see potential for several companies to register surprises.
- On the potential positive side is Food Empire, which we recently initiated with a BUY rating and a PE-based target price of S$0.78/share. The group stopped paying dividends for the last two financial years (FY14-15) due to poor financial results from weakness in Eastern Europe and the Russian ruble. However, Food Empire has turned the corner in FY16, having already recorded 9M16 revenue of US$11.3m, up from US$3.1m in 9M15. We are hoping that it may restart paying dividends this financial year, although this is currently not our conservative base case of no dividends. In our view, the potential DPS could be up to 1.0 US cents/share or a yield of 2.2% based on the historical trend and current price.
- We also see a potential for a gradual uptick in ComfortDelGro’s dividend payout (53.2% to 64.1% from 2011 to 2015) when the group reports its 4Q16 results on 10 February. The rise in dividends should not be surprising given CD’s stronger cash flow generation capability after the transition to the Government Contracting Model. However, we see continued headwinds for its Singapore taxi operations and potential slowdown in the UK to further impact the group and we put our rating under review pending its results on 10 February.
S-REITs selectively attractive, zoom in on business park and hospitality.
- We see selective opportunities to invest in S-REITs at compelling levels as rate hike expectations dampen share prices. S-REITs offer a reasonable balance of yield and growth.
- We anticipate supply-led recovery within the business park and hospitality space with Ascendas REIT, Ascott REIT and Frasers Hospitality Trust (FHT) as our preferred picks for these segments.
- A-REIT has outperformed significantly in Jan 17, rising 8.4% mom and we would await a pull-back before buying further.
- We also like Frasers Logistics & Industrial Trust (FLT) for its Australian exposure with relatively better growth prospects compared with its Singapore peers while offering a high 7% yield.
Waiting for better entry levels, look at laggards instead.
- Given that FSSTI has been an out-performer and is trading above our year-end target of 3,000, we would tactically top slice selected stocks and await better entry.
- In addition, we would look at laggards and would buy preferred stocks on share price pull-backs.
- Stocks we would top slice include SATS, Wilmar, DBS Group and SIA Engineering.
- Conversely, laggards we like include Bumitama, OCBC (switch from DBS) and Raffles Medical.