3 Singapore / Hong Kong Dividend Stocks
Income investing is often known as dividend investing as well. It involves a careful selection of good companies that pay consistent dividends over a long period of time. In this article, you will receive three different SG / HK stocks which I have screened out using various stock screeners (MSN Money, Yahoo! Finance, etc).
Criteria
Using the exact same criteria set out in my earlier article (Sustainability of Dividends), we will look out for consistency of dividends, the stability of business and payout ratio.
- Dividends per share to be on a stable or increasing trend with at least 2 – 3 years of track record
- Stability of the business where we can see stable profit margins and revenue.
- Payout ratio where the dividend per share is less than 90% of the earnings per share.
For this purpose, we are going to look for companies with a market capitalization of >$200m USD and non-REITs.
#1: Goldpac Group (SEHK:3315) with a yield of 10%
Goldpac is an award-winning company with recognitions such as “Most Influential Enterprise”, “Most Competitive Product”, “Best Value TMT”, and model for “Mass Entrepreneurship and Innovation.” It manufactures chips found in financial cards and designs embedded software. According to Nielson Report 2015, Goldpac is among the top 4 worldwide with Gemalto, OT, and G&D. It is able to distribute chips used in cards of VISA, MasterCard, American Express, and China UnionPay. They are the largest in Greater China and most of the financial banks are their close partners.
Its chairman is Lu Run Ting who owns 43%. One of Asia’s notable asset manager, Value Partners HK, owns 4.3%.
The image credits belong to Goldpac.
Now, let us run through the numbers by looking at the revenue growth and profit margins:
The charts indicate that Goldpac is facing some margin pressures however the business is stabilizing. Goldpac does not have any debt. 73% of its shareholders’ equity is in cash. As a result, Goldpac has a net cash per share of HKD $1.69. Any interest hikes would not affect Goldpac. On the valuation front, it is trading at Price-to-Earnings ratio of 9x backed with an ROE of 8.7%.
To calculate the dividends yield, it is HKD $0.20 dividends (special and common) divided by the share price HKD $1.97, you will get 10.2% yield. What if Goldpac stops paying the special dividend? Then, it is HKD $0.16 divided by the share price HKD $1.97, you will get a 7.1% which is very decent too.
Is the higher payout ratio a concern? In my view, Goldpac does have huge capital expenditure requirements and the business is not expanding any time soon. It takes whatever it earns and pays it out to shareholders. Since Goldpac has a net cash per share of HKD $1.69, assume HKD $0.20 is paid yearly, Goldpac is able to pay 8.4 years of dividends from its cash pile!
Goldpac is in far better position than Starhub (Singapore dividend stock). Starhub has huge debt and it does not have sufficient cash flow to continue paying the current dividend.
Final Evaluation:
Consistent Dividends: 3/5
Stability: 3/5
Payout ratio: 4/5
Total: 10/15
#2: VICOM (SGX:V01) with a rock-solid yield of ~5%
The image belongs to VICOM.
VICOM provides vehicle inspections for vehicles, motorcycles. It also provides emission test laboratory services. Under its SETSCO brand, it provides non-vehicular inspection such as calibration, consultancy, and training to a group of industries. It also set up Aerospace Testing Centre (SATC) for aircraft components. All cars have to go for inspections when they are 3, 5, 7, 9 years old and every year after 10th years old. It is mandated by the Singapore law. It has a commanding market share of 76.5%, according to LTA.
The dividend is rock-solid because its operations are not likely affected by any economic cycles.
Its parent company is ComfortDelgro who owns 67%.
Again, we will take a look at its revenue growth and profitability. On the balance sheet, 72.8% of its equity is in cash. This means that its cash per value is SGD $1.28. There is no worry on the enormous strength of its balance sheet. The Price-to-Earnings ratio is roughly 21x with an ROE of 17.3%
While VICOM’s profits have dropped in the last few years, it is poised to rebound in the next 1 -2 years. Using LTA’s statistics, at least 26% of the car population turns 3 years old and they require inspections. Since VICOM is the inspection leader in Singapore, they do not need to reinvest their earnings to expand their operations. Most of their earnings are likely to be used for dividends.
In the last financial year, VICOM paid $0.36 of dividends which is roughly 120.4% of its earnings. To keep things sustainable, we would assume 100% of earnings are paid out as dividends. The Earnings Per Share was $0.299. Taking $0.299 divided by SGD $6.20, you will get a yield of 4.8%. To get a yield of 5%, buy it at SGD $5.98.
Final Evaluation:
Consistent Dividends: 4/5
Stability: 5/5
Payout ratio: 4/5
Total: 13/15
#3: Giordano International (SEHK:709) with a 7% yield
This image belongs to Giordano.
Giordano is an international fashion retailer with Hong Kong origins. Their family of brands include Giordano, BSX, Beau Monde. They have sales from Hong Kong, China, Taiwan, Middle East, and other parts of the world. Recently, they have been awarded Top 10 eCommerce website award. Giordano has been focusing on operational efficiency, better distribution, and online distribution. Dr Peter Lau is the current Chief Executive.
The business has HKD $0.74 net cash per share and it delivers a decent 14.4% ROE. The Price-to-Earnings Ratio is 14.2x.
My impression of Giordano is not that good. Its brand reputation was not as good as before. That being said, I recognised efforts to revitalised the brand. Lately, they are having success with their G-motion line. In FY2014, the dip in profits started. The management took roughly 2 years to solve the issues before profits started to recover in FY2016. Looking at its latest 1Q 2018 results, its recovery started to gain momentum. Particularly, its gross profit increased by 12.5% and E-business grew by 44.6%.
You can also note that its operating income margin started to improve from FY2014 to FY2017. I believe we can expect further improvements which allows Giordano to pay out a higher dividend in the future.
To keep things sustainable, we would assume 100% of earnings are paid out as dividends. The Earnings Per Share was $0.318. Taking $0.318 divided by HKD $4.50, you will get a 7.1% yield.
Final Evaluation:
Consistent Dividends: 3/5
Stability: 3/5
Payout ratio: 4/5
Total: 10/15
Hope you enjoy this article! I do hope all the listed businesses earnings will go up the next time we review them!