Top 5 Dividend Stocks on SGX

On SGX, a stock screener function is avaliable and dividend stocks can be filtered. I will be weighing my thoughts on the 5 highest SGX dividend stocks and if it is sustainable. I have excluded PRIME US and KORE REIT which SGX listed as No 2 and No 3 because their dividends have been cut.

1) World Precision Machinery (Yield 19%), WPM

A china precision stock which focuses on metal stamping products. The company distributes a payout ratio of 30% of earnings as dividends. However, first quarter the company reported a loss and this has spooked the market. Looking to this year's results, it is likely dividends will be cut if company follows its 30% payout ratio policy.

WPM is a proxy to the Chinese Manufacturing health. China's manufacturing is declining.

However, if investors want to bet that Chinese manufacturing will recover, WPM is a good bet. The company's balance sheet is relatively healthy and I believe should China recover, WPM will resume dividends at 10+% at current cost price

2) Pacific Century Developments (Yield 14%), PCRD

A large shareholder of HK largest teleco, PCCW/HKT, part owner of FWD insurance and Viu (OTT). PCRD generates dividends from the dividends decalred by its asosciate companies. In 2024, iPCCW/HKT generated a bumper dividend and PCRD then shared the earnings as dividend to shareholders. PCRD is a holding company which just holds investments with no main business on its own, similar to Taiwan's Hotung Holding.

How much PCRD distributes as dividend annually depends on the performance of PCCW in HK and Viu. The current strucutre of PCRD is that it is largely held by Pacific Century Group with Richard Li at the helm. PCRD is structured to be milked as a cash cow providing the cash to its parent, Pacific Century, to finance its operations.

Hence as long as the structure remains, it will definitely be a top dividend stock for shareholders.

3) Asian Pay TV Trust (Yield 13.2%), APTT

APTT is in the TV/Broadband business in North/Central Taiwan. Its annual dividend is 1.05 cents. 

With dividend forming only 15% of its free cashflow with the remaining used to pay down its large debts. The trust is highly geared but i believe it will not affect its dividend. I foresee a continous issuance of 1.05 cents dividend. Its TV business is declining but the remaining cashflow generated from its broadband business is able to support current dividend. 

4) HPH Trust USD (Yield 13%), HPHT

The trust pays a high and fixed payout ratio. It is in the business of Hong Kong Terminal Port operations. The port operations is currently in an upcycle with supply outstripping demand. This is why HPHT is earning good profits and in turn distributing it out as dividends. 

It is in a cyclical industry. Hence I do not view the current dividend as sustainble. It depends on the dynamics of Hong Kong's port supply/demand. 

5) ARA US Hospitality Trust (Yield 11.8%), ARAHT

The trust is in the 3 and 4 stars hotel business in USA, catering to the mid end business and tourists. While it sports brand names such as Marriott, Hilton and Hyatt, the tier of the brands ARAHT has is for consumers of the middle income level. Its hotel occupancy has been low, but churns out good profits because unlike office/malls, hotels occupancy do not need to be sky high to maintain profits.

To delever itself, the trust has been selling a few properites such as Hyatt House. The trust has a sightly high leverage and is facing an increasing cost of debt due to US Fed interest rate upcycle (now in the region of 5.7%). However, I feel the dividend is sustainable. The reason why its dividends places it in top 5 is because Mr Market is worried about its declining profits/earnings due to high interest expense and valuation decline due to the need to set higher discount rates. However, once the cost of debt falls due to the reduction in US Fed interest, its dividend can still be maintained.

Investors should expect a drop in annual dividends this year. This is because the trust has to conserve some cash. Secondly, there is a change in ownership from ARA to the Tang family of Chip Eng Seng. It is likely some cash will be saved so that when the upcycle in US hotels happens, the Tang Family will inject Chip Eng Seng US hotels into ARA portfolio to monetise it. The injection may mean ARAHT has to pay out via cash/borrowings/share placement

Summary

To me, no 2 and 3 will likely continue to dish out good dividends. No 5 is a mixed bag because there could be an undertone that ARAHT could be conserving cash and then using it to monetise the new owner's US hotel assets via an injection into the stapled trust.

No 1 and 4 are dependent on the industries they are in, so earnings/dividend are cyclical.

Mid July Update: Locked Profit on PRIME US Trade, LINK REIT Purchase

Following up from my previous update, I mentioned my latest PRIME US purchase was a short term punt on the news of debt renewal. It happened and the share price went up 30%.

Refinancing for PRIME (almost done)

PRIME US REIT's refinancing is almost done and I believe it can be successfully completed. Both PRIME and KORE REITs are financially stable for now. Unlike one financial blogger who terms this US REITs as "Sampan REITs", I do not think this is entirely true.

What has negatively affected these 2 US commercial REITs is the overall industry. Cashflow wise, they have been able to promptly pay their debt facilities' instalments. Therefore, I do not think they are as distressed as it seems. As a few of their properties are in US cities with stronger vacancy and Grade A status, they should be able to benefit much as US office vacancy stabilises.

Overall, I am still optimistic that these REITs can double in share price from here as they shift closer to their net asset value.

Li Auto was sold as well given the run up in prices.

Bought LINK REIT

Using the sale proceeds, I bought LINK REIT. The reasons are: largest REIT in Asia, one of the lowest leverage ratio, properties are diversified across East Asia/Australia, an internal REIT manager eliminating conflict of interest and 8% dividend yield. It surpasses all Singapore REITs and is definitely better than any Capitaland or Mapletree REIT. I would focus only on LINK REIT for Asia exposure.

With LINK REITs purchase, it does look like my portfolio is becoming a dividend portfolio; but that is because globally, the high risk free rate makes dividend stocks appealing while in Singapore our risk free rate is artifically suppressed.

Why this Stock Could Double and Pay you 10+% Dividend While You Wait

Asia Pay TV trust (APTT) is a trust which offers TV and broadband services in the Northern and Central regions of Taiwan. It was a spin off from the MIIF fund of Australia.

Beaten Down Stock

One reason the trust spots a high dividend yield is because its share prices have fallen 90% from its all time highs and market are fearful of further dividend declines; over the past 10 years, APTT's dividend has been slashed from 8 cents annually to now 1.05 cents. 

Time Have Changed

In the early years of its IPO, APTT had been funding its dividend by taking on more debts. This caused the APTT of today to be over leveraged, burdening the trust with a high interest expense. 

However, in the past 4 years, the new management has dramatically slashed dividends to its current 1.05 cents DPU and used the remaining cash to pay down its debts gradually. 

The current 1.05 cents DPU of $19.9 million cashflow is only 13% of its operating cashflow generation ability of $152 million. With CAPEX guided for $35-38 million, this highlights APTT's reduced dividend of 1.05 cents is sustainable for a long time.

Financing Expenses

Due to the legacy trust manager incurring a huge amount of debt, APTT now has $1.2 billion in debts. Fortunately the financing expense amounts to $44 million a year and when its hedge expires, should rise to $46 million per year based on current interest rate environment.

1.05 cents dividend per unit is Sustainable

Looking at its current cashflow ability of $145-$152 million ($38 million as of latest quarter), its definite APTT can continue paying 1.05 cents DPU which translates to a cash outlay of $19.9 million. 

This is why I am confident despite the declining business in 1 segment, APTT will maintain a DPU of 1.05 cents. Until market appreciates the stability of its current dividend and erases the fear of further dividend cuts, investors are now owning a 13% dividend yielder. 

With SORA now at 3.6%, I view APTT can be equivalent to the higher dividend yielder SG Reits which commands a 7% dividend yield. With that, I will be owning this stock until it reachs the 15 cents range. This means a doubling in returns for owning APTT now.

<Vested in APTT>

July 2024 Portfolio Update: Sale of YZJ Finance and Alibaba to buy REITs

I have given up on YZJ Finance as it moves back to its maritime fund. The company does not seem to be able to move beyond its core. Its foray into the property shadow lending has led to mis adventures and till now, the company is taking time to redeem it. The cost of capital stuck in China's property segment is poor. I still own YZJ Finance in my CPF OA account.

A portion of Alibaba and Hang Lung were sold, with rotation to safer China/HK property of Link REIT and buying more of Utdhampshire REIT. A new addition is seen in Li Auto that has seen a growth in EV car delivery. It is a top 10 EV producer in the world.

Lastly, I bought more PRIME US Reit, this is a short term bet because the outcome of its debt renewal is due between 15-19 July. If it is successful, it is a good short term purchase. With more REITs being purchased, this is now a 20k dividend portfolio with a good mix of growth stocks 

Get Relatively Rich by Investing Overseas

Besides the recent hype where Nvidia has more than doubled in share price, overseas assets are sporting higher returns and dividend yield as compared to our local companies.

Why is this so? Singapore has a low Risk Free Rate

A reason behind this special observation is due to the difference in risk free rate.

Singapore has a risk-free rate (SORA) of 3.7%. USA's risk free rate (SOFR) is 5.25%. SORA and SOFR are the terminology for the secured overnight fund rates in respective countries. For investors investing in any country, the returns they demand would definitely be higher than the risk free rate. However, across countries, for the same type of asset class, the extra % over the risk freer rate will be the same.

For example an investor investing in a premium grade office building, he would want say a 1% return above the country’s risk free rate. In Singapore, this means he has 4.7% annual expected returns; while investing in USA, he will demand 6.25% annual expected returns.

Do We See This in Real Life?

HK has one of the best REIT I have seen - "LINK REIT". It owns an array of properties including Jurong Point and AMK hub in Singapore. It is the largest REIT by market cap in Asia at SGD 14 billion, larger than any Singapore REIT. Compared to any Singapore REIT, Link REIT has a lower leverage ratio at 21%. However, LINK REIT trades at an 8.3% dividend yield; on the other hand, Capland Integrated Trust, trades at a 4.6% dividend yield at a market cap of SGD13.2 billion. At 8.3% yield, it has a higher yield than most of the REITs in Singapore (Singapore 4%-8%).

Besides the risk profile, where people are adverse to China and Hong Kong (HK) due to the poor sentiments created by the communist government; HK and Singapore has a risk free rate difference, where HK is higher by about 1.25%.

This applies in many other areas of investment such as bank stocks, telecoms, retail REIT etc. Even in USA business listed in SGX, Utdhampshire REIT a grade A diversified retail REIT, albeit with a higher-than-average leverage ratio, trades at 10%.

Can Ordinary Investors Capitalize on this?

Yes, both traditional and new tech brokers (such as Webull/Moo) offer the ability for us in Singapore to invest in overseas assets. All we have to do is either sign up to invest in overseas market of Hong Kong Exchange or if we are lucky invest in SGX listed companies with overseas business. After which, we can just convert our Sing Dollar to the relevant foreign currency.

In terms of the commission for changing currencies, the new tech brokers have a slightly lower rate than our traditional brokerages.

Exchange Rate Risk

No doubt there is exchange rate risk if the Sing Dollar depreciates or appreciates. This is something we must tolerate when investing overseas.

To summarize, it is better to invest overseas. This is patly due to the lower risk-free rate in Singapore. As investors and living in Singapore which allows the ease of moving money, investing overseas is easy. For starters, investors can consider LINK REIT mentioned above, in my view, it is better than any Singapore REIT. Due to the risk-free rate in Hong Kong, has dividends higher than any SG REIT including OUE Commercial REIT.

HSBC Revolution Credit Card: End of the Title as Best Cashback or Miles

In May 2023, I said how the HSBC revolution was the card of choice for general expenditure which had 2.5% cashback or 4 miles for almost all categories of spending. 

What Has Changed

Since the start of 2024, HSBC revolution has reduced the categories eligible for 2.5% cashback or 4 miles per dollar. The latest exclusion was the removal of contactless spending which relegated the usual restuarants expenditure, since most use the paywave to tap and pay bills.

From 15 July 2024, contactless expenditure will not be eligible; and from 01 Jan 2025, online spending on air tickets, car rental, cruise tickets (importantly royal carribean) will not be eligible for bonus HSBC points.

That means from 01 Jan 2025, the HSBC Revolution Card becomes a specialist miles/cashback card which targets only online shopping. The card no longer has the versatility of being able to earn outsized rewards in almost any category.

How Will It Change My Expenditure

It does change a lot. As a consumer which has the most expenditure in dining and due to the amount i spend (less than $200 is spent contactlessly), I will need to switch cards. Fortunately, I have the UOB lady's card which is a specialist miles card for dining. However, if I wish to enjoy cashback, I do not have many options left, only the UOB One Card comes to mind.

However as I am still accumulating miles under my UOB cards, UOB lady's card will be my interim expenditure card.

Will I keep the HSBC Revolution Card?

Despite the no annual fee and no fee for converting to Krisflyer miles (until end Jan 2025), I do not have much grounds to keep the card. This is because I do not shop much online, hence accumulation of miles or 2.5% cashback on the Revolution card will be slow.

The credit card now only has value as a "enjoy the sign up gift after going through the loop of spending a certain threshold".

From an awesome general spend card, the HSBC revolution is now a specialist card which targets online spending and large purchase on dining. So if you are a massive online spender who spends $1k per month, HSBC revolution is still a card of choice. Outside of this expenditure, it is time to move on.

Portfolio Purchase: Utdhampshire REIT & Hang Lung Properties

02 purchases have been made and with that conclude my bout of new companies addition.

Utdhampshire REIT:  I have covered this REIT before. It is in the US suburban retail business. My analysis can be found here here 

The REIT has sought to manage the risk of its balance sheet by reducing its payout ratio to 90%. I am expecting a 3.8 US cents annual dividend. 

Secondly, what surprised me was how valuation at year end was not a negative which would have breached MAS leverage limits. Given the 2 positives, the new dividend is sustainable and I am expecting Utdhampshire REIT to be a 10% dividend yielder. The interest coverage and leverage ratios should be within MAS limits.

Hang Lung Properties (HK): The second addition is Hang Lung Properties. It is in the retail mall segment and small part office in China and Hong Kong. The consumer segment it targets are the wealthy and upper middle income, relatively stable. The company owns malls and leases it to tenants. Similar to how Capland China Retail Trust operates.

While its payout ratio stands at 90% and at 78 HK cents, it is sustainable given how its mall rents have been increasing. It is a 11% dividend yielder. Its leverage ratio is much lower than many of Singapore local REITs. Hence for a less leveraged balance sheet than SG reits and its dividends, it is a worthy addition.

Asset Sale: 50,000 shares of Keppacoak was sold to finance the purchase of Utdhampshire. This was due to the limited cash I have and Utdhampshire went slightly down today to warrant a buy.

Dividend Portfolio

My portfolio should now provide approximately SGD$20,000 in annual dividend. Overseas REITs and blue chip HK shares are giving extremely good dividends because the risk free rates are much higher, therefore, dividend stocks with business in these countries have to offer a yield higher than risk free (in the region of 5.25%). 

In addition, due to the negative sentiments surrounding China companies, the sell down has made them double digit div yielder with its business not as adversely hit. They are companies worth owning.

The other advantage I am sitting on is that as global interest rates starts to be cut, the distributable income avaliable from REITs I own will be higher because interest expense is lower. This will naturally lead to a growth of dividends. For the US Commercial REITs, another hurdle to clear is that they survive their loan refinancing. Hopefully this comes to pass in the next 2 months.