Singapore Small Mid Cap Stocks
Dividend Stocks
CHIP ENG SENG CORPORATION LTD
C29.SI
UMS HOLDINGS LIMITED
558.SI
HONG LEONG FINANCE LIMITED
S41.SI
SHENG SIONG GROUP LTD
OV8.SI
Small Mid Cap Stocks Strategy - Upside Participation, Downside Protection:
Part 2 - Dividends provide shelter amidst volatility.
- Dividend sweeteners – Companies that have upped their dividends recently on higher earnings achieved in FY17 - APAC Realty, BreadTalk, Hi-P.
- Dividend growth – Companies that could pay increasing dividends over time - Riverstone, Sunningdale.
- Steady yields – Companies which have been consistent in paying and/or growing dividends - Chip Eng Seng, Hong Leong Finance, Sheng Siong, UMS.
Dividends provide shelter amidst volatility
Small- and mid-cap indices have underperformed YTD.
- YTD, the FT ST Small Cap Index (FSTS) is down 2.1%, while the FT ST Mid Cap Index (FSTM) eased 1.6% vs +2.6% for the ST Index. Both the FSTS and FSTM have not recovered from the February selldown and are still trending near the February low.
- As Small Mid Cap stocks tend to be more volatile, dividends serve as a safety net and offer stability amidst volatile markets.
- In our screen, we focus on:
- Dividend sweeteners – Companies that have upped their dividends recently on higher earnings achieved in FY17 - APAC Realty, BreadTalk, Hi-P.
- Dividend growth – Companies that could pay increasing dividends over time - Riverstone, Sunningdale.
- Steady yields – Companies which have been consistent in paying and/or growing dividends - Chip Eng Seng, Hong Leong Finance, Sheng Siong, UMS.
(1) Dividend sweetener on record FY17 earnings
- On the back of record results, several companies have upped their dividends as a sweetener. In the large-cap space, DBS declared a higher S$1.20 dividend for FY17, to be maintained going forward – which is nearly 2x that compared to previous years. CapitaLand also hiked its 2017 dividend payout by 20% to 12 Scts a share.
- In the small-mid cap space, several companies that have also raised their dividend payout in FY17 include APAC Realty, BreadTalk and Hi-P:
- APAC Realty declared a final dividend of 2 Scts per share in 4Q17. This works out to c. 90% of 4Q17 net profit, as APAC was only listed at end-September 2017. APAC has guided that it is committed to pay at least 50% of FY18F profit as dividend. Assuming a payout ratio of 60% for FY18F, dividend yield is attractive at 4.5%.
We believe that APAC, which owns one of Singapore’s largest real estate agency, ERA Realty, is poised to deliver a robust 10% 2-year CAGR in EPS on the back of a turn in the Singapore residential market, which is at the cusp of a multi-year recovery. - BreadTalk declared final and special dividends of 2 Scts and 3 Scts respectively, exceeded our expectations of a total of 4 Scts. Going forward, our positive stance for the stock continues as BreadTalk's financial performance remains on a growth trajectory.
Higher-than-expected special dividends will support the share price, while any property sale going forward could act as a share price catalyst. - For Hi-P, the group has declared a special DPS of 19 Scts, together with the 2Q17 results announcement. For the full year FY17, dividend yield, excluding the special payout, works out to 3% or 6 Scts DPS. Going forward, we expect higher dividend payout ratio of 35% (up from 20%) in FY18F and FY19F, which works out to a DPS of about 6 Scts, which is similar to FY17, excluding special DPS of 19 Scts.
We expect earnings momentum for Hi-P to remain strong, on the back of the new products in the Wireless and IoT segments, and also an expanding customer base. We are now expecting EPS CAGR of 41% for FY16-19F. Hi-P is in a sweet spot now as more than half of its earnings are derived from the Wireless (smartphone) and Computer Peripherals (IoT segment, e.g. smart home) segments, which are expected to continue to do well.
- APAC Realty declared a final dividend of 2 Scts per share in 4Q17. This works out to c. 90% of 4Q17 net profit, as APAC was only listed at end-September 2017. APAC has guided that it is committed to pay at least 50% of FY18F profit as dividend. Assuming a payout ratio of 60% for FY18F, dividend yield is attractive at 4.5%.
(2) Two companies that have emerged as dividend growth plays
- Supported by firm earnings growth and strong cash flow generation, both Sunningdale and Riverstone have been paying increasingly higher dividends y-o-y over the past few years:
- Since FY12, Sunningdale has been growing dividends by at least 0.5 Sct to 1 Sct p.a., resulting in a substantially higher dividend payout of 7 Scts per share in FY17 vs 3 Scts in FY12.
- While Riverstone does not have a fixed dividend policy, its past payouts have averaged 40%. As profits grew, its dividend payments have also more than doubled from 3.1 sen in FY12 to 7 sen for FY17.
- Underpinned by capacity growth and ongoing production ramps amidst robust demand, their core earnings are projected to grow at 15-16% CAGR over FY17-19F, which provides support for expectations of even higher dividends to be paid going forward.
(3) Consistency is key
- Apart from REITs/Trusts, several SMCs have also demonstrated consistency in paying good dividends. UMS has been paying a fixed 5-6 Scts of dividends since 2010, and maintained its payout despite issuing bonus shares in FY17. Chip Eng Seng also stands out for its fixed 4-Sct dividend (with upside from special dividends in bumper years), which is rare among small-cap property developers.
- Hong Leong Finance and Sheng Siong, which typically manage dividends based on a target payout ratio rather than a fixed amount per share, have also paid consistently good dividends in past years. With earnings set to grow at 4% and 5.5% over FY17-19F respectively, we believe the positive dividend growth trend is likely to be maintained going forward.
Upcoming Dividend Distributions & Payout Dates
Lee Keng LING
DBS Vickers
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Carmen TAY
DBS Vickers
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http://www.dbsvickers.com/
2018-03-08
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