4 WINNING DIVIDEND BLUE CHIPS FROM · 2020. 10. 22. · 4 Winning Dividend Blue Chips from 2020...

4 WINNINGDIVIDENDBLUE CHIPSFROM2020

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SPECIAL

REPORT

Welcome to a special report by The Smart Investor!

Dividends are a great way to put extra money in any investor’s pocket.

Everyone has their own reasons for wanting to earn additional income.

Maybe you are saving up for a major expense somewhere down the road.

Or maybe you like the extra cash to enjoy some of the finer things in life.

For those close to retirement, this additional income will come in handy when it’s timeto enjoy your golden years.

In this report, we cover how you can invest in blue chips to gain a steady income.

We’ll start by covering some of Singapore’s favourite blue chips, why we are investingfor dividends, before ending off with four winning dividend blue chips in 2020.

Above all, we hope to shine a light for your journey ahead as you create your owndividend-paying portfolio of stocks.

Let’s get going, shall we?

T H E R O A D T O R I C H E S I SP A V E D W I T H D I V I D E N D S

4 Winning Dividend Blue Chips from 2020

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21 What are blue-chipcompanies?

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The Straits Times Index:Singapore’s Favourite Blue Chips

Why invest fordividends?

The upside to dividendinvesting

The downside todividend investing

And along came apandemic …

4 Winning Blue-Chipsfrom 2020

15 The Final Word: Don’tget trapped, Get Smart


Blue-chip companies are generallydefined as large, well-capitalisedcompanies with a long operating trackrecord and a distinctive brand name.

The term blue chip comes from the gameof poker where the blue-coloured chip hasthe highest value.

Fittingly, blue-chip companies arebusinesses that have made their mark inthe corporate world through years,sometimes even decades, of steady andconsistent growth.

Blue chips are often prized for their well-established position in their respectiveindustries and for their financial stability.

To be designated a blue-chip company isakin to being bestowed an honour as thissignifies that the company has earned itsreputation.

These businesses are usually marketleaders in their respective industries andhave a dominant competitive edge oversmaller competitors.

By buying into blue-chip companies, theimplication is that you should be able tosleep well as they are supposed to offerstability and certainty.

To some, blue-chip companies arethought to be resilient in the face ofadversity and can tide throughdownturns and crises much better thanthe average company.

Generally, this coveted set of companiescan be found in Singapore’s StraitsTimes Index (SGX: ^STI) which, as you willsoon find out, holds a diverse group oflarge companies.

Yet, recent events have shown thatbigger is not necessarily better.

The COVID-19 pandemic has exposed theweaknesses of some of these well-regarded companies.

In fact, there are only four companiesfrom the Straits Times Index which haveincreased their dividends in the first halfof 2020. We’ll be covering all 4 in thelater part of this report.

W H A T A R E B L U E - C H I PC O M P A N I E S ?

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The stocks within Singapore's broad market index, The Straits Times Index, are oftenreferred to as blue chips.

The index is jointly conceived by FTSE Russell, Singapore Press Holdings (SGX: T39)and Singapore Exchange (SGX: S68) with the aim of representing the top 30companies by market capitalisation on the SGX Main Board.

The table on the next page provides a summary of all the components that make upthe index.

T H E S T R A I T S T I M E S I N D E X :S I N G A P O R E ’ S F A V O U R I T E B L U E C H I P S

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Source: FTSE factsheets; weightage as of 30 June 2020 3


The local banks, DBS Group Holdings Ltd(SGX: D05), United Overseas Bank Ltd(SGX: U11) and OCBC Ltd (SGX: O39) sitright at the top, accounting for almost40% of the index’s weightage.

After the trio is SingaporeTelecommunications (SGX: Z74), orbetter known as Singtel, the nation’slargest telco provider.

Large conglomerates, such as JardineMatheson Holdings (SGX: J36) andJardine Strategic Holdings (SGX: J37)hold a diversified stake in multiplebusinesses ranging from propertiesowned by Hongkong Land (SGX: H78),supermarkets by Dairy FarmInternational Holdings (SGX: D01) toautomotive sales by Jardine Cycle &Carriage (SGX: C07).

Likewise, Singapore TechnologiesEngineering (SGX: S63) has a foothold invaried industries such as electronics,aerospace, marine and land systems.

The real estate sector also featuresstrongly in the Straits Times Index withAscendas REIT (SGX: A17U), CapitaLand(SGX: C31) and Hongkong Land sittingwithin the Top 10 by index weight.

Major property developers such as CityDevelopments (SGX: C09) and UOLGroup (SGX: U14) also occupy a spoteach.

In recent times, the REIT sector hasgrown in importance in this select indexlist.

A competitive tax environment andgrowing private wealth industry aresome of the reasons why Singapore hasbecome a global REITs listing hub.

CapitaLand Mall Trust (SGX: C38U) andCapitaLand Commercial Trust (SGX:C61U), along with the trio of MapletreeIndustrial Trust (SGX: ME8U), MapletreeCommercial Trust (SGX: N2IU) andMapletree Logistics Trust (SGX: M44U),all feature prominently within the StraitsTimes Index.

These six REITs cover anything fromindustrial warehouses and officebuildings, to shopping malls and datacentres.

Meanwhile, the aviation industry isrepresented by Singapore Airlines (SGX:C6L) and airline caterer SATS (SGX: S58).For land transportation, look no furtherthan taxi and bus operatorComfortDelGro Corporation (SGX: C52).

There are a few more companies fromthe list but the underlying messagesshould be clear by now: blue chips canoffer investors a diverse range ofbusinesses.

But that is not enough.

As investors, we have to remember whatwe are aiming for in this case: dividends.

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Many investors relish the thought ofreceiving dividends from theirinvestments.

Dividends represent a pay out from thecompany from the profits it had madeand is a way of rewarding shareholdersfor owning its shares.

This type of income is considered"passive" as you do not have to doanything or take any action to receive it.

In contrast, employment or running abusiness generates "active" income asyou need to put in the effort and hoursto "earn your keep".

This is the main reason why dividendinvesting is so attractive.

Imagine obtaining a regular stream ofpassive cash inflows as you go aboutyour daily life, or relax by the beach witha refreshing cocktail.

With a large enough portfolio ofdividend-generating stocks, the totalcash inflow could be significant and cansustain you through your futureretirement.

Even if you are still working, thedividends form an additional layer ofincome to supplement what you arecurrently earning.

With more cash on hand, you enjoy theflexibility of how to spend the money,whether it be on a relaxing holiday, anew gadget or a charitable cause.

Dividend investing is attractive becausethe income that flows in is effortless.

When you deploy your cash into theright companies, these dividends mayeven grow over the years and provideyou with increased cash payouts overtime.

To be sure, dividend investing has somedownsides.

Here, we discuss the upside anddownside of owning dividend stocks.

W H Y I N V E S T F O R D I V I D E N D S ?

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Investors have two options when it comes to handling their dividend pay-outs. They can receive the dividends as cash or directly reinvest the dividends back into thecompany’s stock. If no action is taken, the former will take place. The latter is known as the DividendReinvestment Plan (DRIP).

Both options have their merits, so let’s illustrate this with an example.

To be sure, there are downsides that you should take note.

Scrip dividends often end up as odd lots which can be hard to sell later on.

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T H E U P S I D E T O D I V I D E N D I N V E S T I N G


Let us now take a look at theoutcome as of the beginningof 2020.

If you had not chosen scrip atall, your total market value forOCBC shares will be S$10,980(1,000 shares multiplied bythe closing share price ofS$10.98 at end-2019). You would have received atotal of S$3,680 in dividendsover the last ten years. Thus, ifwe add these numberstogether, your total assetvalue amounts to S$14,660.

We use OCBC as an example as the bank has, in the last ten years, allowedshareholders to choose between receiving scrip or cash.

There have been periods, though, such as during 2016 and 2017, that no scrip optionwas offered at all. For such periods, the investor would have received cash dividendson his shareholdings.

We track the stock for a period of 10 years, from the end of 2009 till the end of 2019.

Option 1: Receiving the dividends as cash

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2011

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2015

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2017

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2016

Buying 1,000shares ofOCBC atS$8.85 at end-2009 will costS$8,850, andthis will beused as theinitial assetvalue for thepurchase.

At the end of 10 years:

Total dividends received: $3,680

Total market value for OCBC shares: 1,000 shares x S$10.98 = S$10,980

Total asset value: S$3,680 + S$10,980 = $14,660

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200

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10 years later


2010

2011

2012

2014

2015

2013

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2018

2019

2016

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Total cashdividendsreceived ofS$1,888.82 (forall declareddividendswithout ascrip option)

Market valueof OCBC’sshares atS$13,710.

Buying 1,000shares of OCBC atS$8.85 at end-2009 will costS$8,850, and thiswill be used as theinitial asset valuefor the purchase.

Assuming all scrip dividendsare accepted at the variousissue prices set by OCBC foreach dividend, you will end upten years later with 248.62additional shares of OCBC toadd to your original 1,000shares.

At the end of 2019, your totalasset value will be S$15,598.71.This can be broken down intotwo components:

Now, we assume that you have selected DRIP every time OCBC offers it, whether it befor its interim, or final dividend.

Option 2: Dividend Reinvestment Plan (DRIP)

You may ask: why is the market value ofOCBC’s shares so much higher at S$13,710compared to S$10,980 in the first example? That’s because the acceptance of scripdividends has increased the total number ofOCBC shares you own over the years.

This means that you now own 1,248.62 shares,or around 25% more than what you started outwith back in 2010.

And the great thing is - these extra shares haveresulted in higher amounts of cash dividendsreceived over the years, too.

In this example, your dividends have beencompounded to generate even more dividendsfor you. This is the beauty of DRIP over thelong-term.

At the end of 10 years:

Total dividends received: $1,888.82

Total market value for OCBC shares: 1,248.62 shares x S$10.98 = S$13,710

Total asset value : S$1888.82 + S$13,710 = $15,598.71

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10 years later


Receiving cash DRIP

20,000

15,000

10,000

5,000

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A side-by-side comparison between receiving cash dividendsversus choosing the Dividend Reinvestment Plan (DRIP)

For dividend stocks, capital appreciation is only part of the equation. Although stockprices may have decreased due to the panic, resilient companies will still be able topay out stable dividends.

This continued payout provides a safety net for investors during bear markets.

S$10,980

S$3,680

S$13,710

S$1,888.82

Market value of shares Cash Dividends

(1,000 shares x $10.98)

(1,248.62 shares x $10.98)

Total value: S$15,598.71Total value: S$14,660

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Before you invest, it is important to factor in the risks for any investment that youmake.

Here are some cons to consider for dividend stocks.

By paying dividends to the investors, the company ends up with less cash forreinvestment.

This may hinder the company’s ability to improve its processes or grow, which mightaffect its capital appreciation.

Interestingly, growth and dividend pay-outs are interlinked.

A company which has achieved growth over the years is better able to pay out higherdividends, while increasing dividend payouts over the years is also a reason for capitalappreciation.

T H E D O W N S I D E T O D I V I D E N DI N V E S T I N G

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Singapore’s Straits Times Index companies have reported all their results for the firsthalf of the year.

The results aren’t pretty, as you can see in the table below.

A N D A L O N G C A M E A P A N D E M I C …

Source: Company announcements, earnings presentations, and website;Dividends for Hongkong Land, Jardine C&C, Jardine Matheson, Jardine Strategicand Dairy Farm are in US dollars; Dividends for Thai Beverage are in Thai Baht.

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The Singapore dividend “apocalypse” ishere.

If there is any doubt, consider this -- twoout of every three companies that pay adividend have since lowered theirdividends.

Five of them, namely Genting Singapore(SGX: G13), SATS, Singapore Airlines,Sembcorp Industries (SGX: U96) andComfortDelGro Corporation, havestopped paying interim dividendsaltogether for the period above.

It’s not surprising.

After all, the quartet reside in some of thehardest hit industries amid thepandemic.

Keeping dividends unchanged has beena rare sight as well, with only fourcompanies within the index able to doso.

The statistics are sobering for investorslooking for dividends.

The pandemic has been unforgiving inhow it has impacted almost every facetof businesses in Singapore and abroad.

And while some of the dividend cuts mayprove to be temporary or self imposed(for example, the banks have chosen tocut dividends based on MAS’s guidance),only four out of 30 Straits Times Indexcomponent companies have increasedtheir dividends.

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When "blue-chip companies" are pairedtogether with "dividends", you usuallyend up with a very attractivecombination of stability, resilience, andpassive cash inflows.

However, as we have seen above, theCOVID-19 pandemic has created an"apocalypse" when it comes to dividendpayments.

However, even amongst the wreckage,some sparkling gems have raised theirdividends.

Here are four blue-chip companies thatmanaged to increase their dividendsdespite the tough economic conditions.

Mapletree Logistics Trust, or MLT, is aREIT that owns a diversified portfolio ofincome-generating logistics andindustrial properties.

As of 30 June 2020, MLT has a portfolio of145 properties spread out over eightcountries in Asia and Australia, with atotal asset under management of S$8.9billion.

MLT is managed by Mapletree LogisticsTrust Management Ltd, which is awholly-owned subsidiary of state-ownedMapletree Investments Pte Ltd.

1. Mapletree Logistics Trust(SGX: M44U)

For its fiscal 2020/2021 first-quarter, theREIT reported a year on year increase of10.5% in gross revenue, generatingS$132.4 million.

Distributable amount to shareholdersinched up 5.7% year on year to S$77.8million.

However, due to an enlarged base ofunits, distribution per unit (DPU) onlyrose 1% year on year from S$0.02025 toS$0.02045.

MLT's portfolio has remained relativelyresilient despite the economicturbulence.

In June 2020, the REIT announced theproposed acquisition of a freehold GradeA warehouse in Brisbane, Australia forA$21.3 million.

This property is scheduled for completionby the third quarter of the current fiscalyear and will be leased to a prominenttenant for the next 10 years with annualrent escalations.

As restrictions are eased around theworld and economies reopen gradually,MLT's tenants have mostly resumedoperations. Only 1.3% of MLT's tenantbase is still not operating.

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4 W I N N I N G D I V I D E N D B L U E - C H I P SF R O M 2 0 2 0


Singapore Exchange Limited, or SGX, isSingapore's sole stock exchangeoperator.

The bourse operator operates a platformfor the buying and selling of a widevariety of securities such as equities, fixedincome, derivatives and currencies.

For SGX's full fiscal year ended 30 June2020, it reported a 16% year on yearincrease in revenue to S$1.05 billion.

Net profit jumped by 21% year on year toS$472 million.

The group increased its quarterlydividend to S$0.08 from S$0.075 a yearago.

Moving forward, the annualised dividendfor the new fiscal year 2021 will be S$0.32.

SGX has also been busy on the businessdevelopment front.

It recently launched 13 futures to coveralmost 100% of Asia's GDP, and which willsignificantly expand its all-Asiawaterfront for equity derivatives.

The group and FTSE Russell also signed along-term strategic partnership todevelop innovative Asian multi-assetsolutions. FTSE Russell is a global index,data and analytics provider.

2. Singapore ExchangeLimited (SGX: S68)

3. Venture CorporationLimited (SGX: V03)

Venture is a leading global provider oftechnology products, solutions andservices.

The group has a portfolio of more than5,000 products and solutions serving awide variety of industries such as lifesciences, medical devices and financialtechnology.

The contract manufacturer employsaround 12,000 people worldwide.

For the second quarter of 2020, Venture'srevenue inched up 2.9% quarter onquarteryear on year to S$692.7 million.

Net profit increased by 16.4% quarter onquarteryear on year to S$70.2 million asmanufacturing activities recovered inMay and June amid easing lockdowns.

A favourable product mix also bumpedup net margins amid a favourableoutlook for the group.

The group increased its interim dividendfrom S$0.20 to S$0.25 as a show ofconfidence in its prospects.

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And in early September, SGX announcedthat it will partner with CryptoCompareto launch crypto indices, marking thebourse operator's first entry into thedigital currency asset class.


The steady recovery witnessed so farduring the quarter is expected to carrythrough to the second half of the year.

Venture's research and developmentlabs are also planning to release severalnewly-developed products intomanufacturing in early 2021.

Despite the challenges it faced earlierthis year, Venture's outlook remainssanguine and investors can look forwardto better numbers in the year ahead.

Consumer products sales increased aspeople ate more often at home duringlockdowns.

Wilmar's operations were allowed tocontinue as the group is deemed to beoperating essential services.

The recent increase in palm oil pricesshould also contribute positively to thegroup's plantations division.

Wilmar is cautiously optimistic that itsperformance for the second half of theyear will be satisfactory.

The group also announced that its99.99%-owned subsidiary, Yihai KerryArawana Holdings Co., Ltd, has obtainedlisting clearance from the ShenzhenStock Exchange.

The company has submitted its updatedprospectus to the China SecuritiesRegulatory Commission for finalregistration approval to list on thebourse's ChiNext Board.

However, there is still no confirmation onwhen the IPO will be, as this is stillsubject to further approval and marketconditions.

4. Wilmar InternationalLimited (SGX: F34)

Wilmar is a leading agribusiness group.The group's business activities include oilpalm cultivation, sugar milling andrefining, and manufacturing of consumerproducts.

It has over 500 manufacturing plants aswell as an extensive distribution networkcovering China, India and Indonesia and50 other countries and regions. Wilmaremploys around 90,000 peopleworldwide.

For the group's first-half 2020 earnings, itreported a 12% year on year rise inrevenue to US$22.7 billion.

Core net profit jumped by close to 50%year on year to US$635.9 million.

The interim dividend was raised by 33%from S$0.03 to S$0.04.

There was an improved contributionfrom all of Wilmar's divisions, driven byimproved demand.

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Dividends allow investors to experiencethe wonders of compounding, and also provide a stream of passive income

However, there are red flags you need towatch out for.

Known as dividend traps, these stockspay-out seemingly attractive butunsustainable dividends.

Unlike REITs, dividend companies canalter their dividend pay-outs anytime.This means that they can increase oreven stop their dividend payments atany moment.

Thankfully, these changes are oftenpredictable if you keep track of thecompany’s business and financials.

Investors should pay extra attention tohigh-yield dividend stocks as they areoften the ones that may yield nasty,unexpected surprises.

Regular dividends can be a source ofincome for many investors.

Many of us, including us here at TheSmart Investor, plan to retire with astable, passive income.

At The Smart Dividend Portfolio, we’rebuilding a sturdy portfolio that is aimedat weathering the volatilities of themarket. After all, the whole point aboutinvesting is to make money.

And we’ve made some money.

In a few short months, after investingS$20,000, we have received nearly $500in dividends. One of our stocks hasalready doubled in value.

Our work is not done. We have justrecently concluded a review of all 15stocks within our Smart DividendPortfolio. We are now ready to embarkon the next tranche of investments in thecoming months.

If you’d like to join us on this journey tobuild a strong, passive income stream,just click the button below.

It’s a great time to join us. You getimmediate access to all 15 stocks withinour portfolio, and will be ready to join usfor the next tranche of investments.

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Click here for instant access toall 15 of our dividend stocks!

T H E F I N A L W O R D : D O N ’ T G E TT R A P P E D , G E T S M A R T

Disclaimer: Royston Yang owns shares in Singapore Exchange Limited,SATS and DBS Group. Chin Hui Leong owns shares in DBS Group, OCBC,

UOB, Singapore Exchange, Hongkong Land, Dairy Farm International,CapitaLand Mall Trust, Mapletree Industrial Trust and SATS.
https://thesmartinvestor.com.sg/the-smart-dividend-portfolio_2020_0802388/

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